Inter-company networks for jointly developing innovative products: Configuration and current examples from German industry

Abstract

Owing to the rapid technological advancement and globalization, the innovation paradigm has shifted from closed innovation to open innovation. Adopting the open innovation paradigm, companies increasingly look for external sources of ideas as well as external paths for in-house technologies. On the other hand, the tendency of firms to focus on their core competencies has made them to interact on a greater extent with their suppliers. This increased interaction and collaboration has resulted in formation of relationships between organizational entities. Organizations, along with their set of relationships, form a network-type structure. Networks that focus on innovations are referred as innovation networks. Inter-company networks, a sub-type of innovation networks, focuses collaborative activities especially between firms among other organizational entities.

The paper discusses networks in general and considers inter-company networks in particular. With the growing number of inter-company networks and the need to identify patterns within them, the concept of network configuration is discussed. At the end of paper, examples of inter-company networks in Germany are provided and analysed with reference to the theoretical background provided in preceding parts of the paper.

Keywords: Innovation networks; Inter-firm networks; Inter-company networks; Network configuration; examples; German industry

Table of Contents

1  Introduction  1

2  Overview of Networks  2

2.1  Changing business conditions and the need for collaboration  2

2.1.1  Shift to Open Innovation Paradigm  2

2.1.2  Changes in Organizational Structures  3

2.1.3  Collaboration as a Response  4

2.2  Defining Networks  5

3.  Inter-Company Networks  6

3.1  Networks of Innovation  6

3.2  Inter-company Networks  7

3.3  Development Process of Inter-Company Networks  8

3.4  Benefits and Barriers  10

4  Concept of Network Configurations  11

5  Examples from the German Industry  14

5.1  Interactive Video Services Stuttgart  14

5.2  Biotech Region Martinsried Munich (BRM)  15

5.3  Other Examples  17

6  Conclusion  17

  References  19

Appendix i   

1 Introduction

In the foreword to Henry Chesbrough’s book on Open Innovation, John Seely Brown, Director Emeritus of Xerox PARC, emphasizes the need to be innovative in the area of innovation itself by calling the foreword as “Innovating Innovation”. Rapid technological advancement catalyzed by globalization has resulted in stellar economic growth worldwide. The chances and challenges posed by these changes are central to the need expressed by John Seely Brown. In response to this need to find new ways of innovating products, network form of organizations has appeared encompassing the collaborative activities between organizations. Academic community, industry and government bodies have realized the importance of these so-called innovation networks. The initiatives for inter-company networks are identified by the government as important measures for regional and national-level economic development. With the increasing number of inter- company networks, researchers are attempting to find a pattern within them by performing empirical and statistical methods. This paper in context of the German industry, tries to explore the theoretical aspects of inter-company networks and their types (network configurations).

For this purpose, firstly, the paper provides an overview of networks by explaining how changing business conditions resulted in an increase in collaborative activities between organizations, which in turn lead to the formation of networks. The focus is then on inter- company networks - its development process and related aspects. Next, the concept of network configurations of inter-company networks is explained. Finally, selected examples from German industry are analyzed against the above mentioned theoretical aspects.

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2 Overview of Networks

2.1 Changing business conditions and the need for collaboration

2.1.1 Shift to Open Innovation Paradigm

Innovations, in simple terms, are inventions implemented and taken to market. They can be either new products/services or processes aimed at providing the users with better functionality and/or reduced costs than the existing ones. Successful innovations not only rejuvenate the revenue streams of a firm, but also ensure that the firm continues to grow or at least sustains itself. On the other hand, failed innovations or no innovations at all can question the existence of the firm. With the underlying potential to create, sustain or disrupt, the occurrence of innovations in a firm could not be left to chance. This demands systematic planning and implementation of innovations within a firm.

With the embracement of the concept of innovation by the academic community since early 20 th century, the industry depicted a systematic approach to innovation. However, in the last couple of decades, the impetus for innovation within industry has intensified and has become more far-reaching than before. This can be attributed to the ongoing integration of the world economies expressed by the phenomenon of globalization, which on one hand has opened up an array of business opportunities for the firms and challenges on the other (Tiwari, 2007:3). Ascribed to the disadvantage faced by the firms in developed or industrialized nations to compete with the low-cost producers from the emerging markets, the competitive advantage for these firms has predominantly become innovation-driven (Tiwari(2), 2007). Additionally, the steeper technological advancement following the World War II and the ever increasing market competition have led to reduced life cycles for products and services. This collectively, in turn coerced the industry and thereby the academic community to come forward with better and faster ways of innovating.

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The process of finding these better ways to innovate resulted in shifting of the innovation paradigm, ascertained by Henry Chesbrough (Professor at University of California, Berkeley), and evinced by him as shift from the closed innovation paradigm to open innovation paradigm. Closed innovation describes the paradigm of innovation persistent predominantly in the post-war (after World War II) period, wherein the innovative firms relied entirely on their own ideas and restricted the use of its inventions to a single internal path to market (Chesbrough, 2003:19). In contrast, open innovation implies that the source of valuable ideas for a firm can be from both outside or inside the firm’s boundaries and the firm’s inventions can be taken to market using either internal or external paths (Chesbrough, 2003:43). The possibilities include licensing, spin-offs, joint ventures, lead users, involvement of internet communities, etc.

The authors of this paper have found internet communities of particular interest, as this typically means user involvement in the innovation process. What is more interesting, however, is that some companies seem to start a new trend in open innovation – setting up internet portals and asking not (only) the users, but particularly companies to join their innovation efforts (refer to Siemens Medical Systems example).

In short, in today’s world, the adoption of a more “open” approach to innovation enables the firms to bring new products and services faster to market and/or remain cost- competitive, thereby enabling sustenance of the firms’ competitive advantage.

2.1.2 Changes in Organizational Structures

Another important aspect looking back in history is that approximately two decades ago firms started facing “organizational revolution” (Miles and Snow, 1992:53) - an internal structure change due to changing business conditions (increasing global competition, shifting patterns of international trade and rapid technological change) (Miles and Snow, 1986:62-64). As a response, firms tended to be more dynamic and smaller. New companies, especially in emerging industries, like biotechnology, have from the beginning been flat and lean. Other companies in so-called mature industries (oil, steel,

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textiles) started downsizing. They tend not to have the departments which are not performing well, and focus instead on their core competencies (Miles (1989:14-15); Miles and Snow (1986:64)).

The important notion in discussing organizational changes is that very often, instead of one complex organization with vertically integrated departments, there appeared a number of organizations teamed up in a value chain. For example, a product would be developed by a team comprising of the parent company, suppliers and probably allied companies in multiple locations. (Miles, 1989:14,17)

2.1.3 Collaboration as a Response

The implication of the above mentioned changes was the need for collaboration with other firms. Firms desiring superior innovation performance focus their collaboration efforts on strategy, organization and collaborative capability development instead of limiting themselves to the outsourcing mindset (MacCormac et al., 2007:1-3,16). Such collaboration between firms and their partners can occur at different stages of the value chain. The majority of the research literature is found to discuss collaboration in R&D stage, which supports the reasoning that firms are increasingly looking for external source of ideas as mentioned above. They try to focus where they have comparative advantage and act in a coordinated manner to bring innovations to the market (MacCormac et al., 2007:3, Perks and Jeffrey, 2006:67-68). Essentially, collaboration in R&D, or jointly development of new products, suggested some benefits to companies. However, there also exists literature discussing collaboration in supply chains, manufacturing (See Krajewski and Wei, 2001; Shi and Gregory, 1998; Ruderg and Olhager, 2003), and probably other stages in the value chain.

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2.2 Defining Networks

The engagement of firms into collaborative activities with other organizational entities involves interactions between them. Blois (1972) describes these interactions in terms of “relationships”, since 1) the firms themselves tend to see their interactions as relationships and 2) that over time the interaction results in a quasi-organization which can be termed as a relationship. (cit. op. Håkansson and Snehota, 1995:25) Thus, relationships can be described as “mutually oriented interaction between two reciprocally committed parties” (Håkansson and Snehota, 1995:25). It is also argued that single business relationships are part of a larger whole indicating interdependencies between them. Interdependence between relationships here implies that things happening in one relationship have effect on other relationships, which highlights the connectedness of these relationships (Håkansson and Snehota, 1995:17). This suggests an aggregated structure or a form of organization, which is qualified by Håkansson and Snehota (1995) as a (business) network. Such understanding of network is also reflected by Lechner and Dowling (1999:312), where they provided definition of network as: “a specific set of links between a defined set of actors with the characteristic that the links as a whole may be used to interpret the social behavior of the actors involved.”

The concept of network can be visualized in Figure 1 in Appendix. As shown in the diagram, a network consists of actors connected by relationships. Actors can be individuals/teams/departments within organizations (for the purpose of this work they are not discussed further), firms, research institutions or universities. Networks often need facilitators, which play pivotal role in the formation and sustenance of the network. The function of facilitator is assumed by either actors themselves (refer to DHL Innovation Network and Siemens Medical Systems examples) or government agencies (refer to Biotech Region Martinsried/Munich and Interactive Video Services Stuttgart examples). Relationships are links between the actors and represent the interactions between the network partners. The complexity of the relationships is best described by Håkansson and Snehota in their book “Developing Relationships in Business Networks” (1995).

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3. Inter-Company Networks

3.1 Networks of Innovation

The formation of relationships with other firms in the network creates potential for innovations by providing access to external capabilities and expertise (Bönte and Keilbach, 2005:1). Naturally, this potential is not always realized. Sometimes companies are not successful in capturing it, and sometimes networks simply fail before innovation is generated. Innovations for a network participant can result either as a positive externality of participation in the network and/or by the attainment of explicit network objectives.

The term innovation networks is used quite often by the academic community while referring to networks of organizations, however, it is not clear as to what relation(s) between the network and innovations allow to qualify it for this term. As mentioned above, the network’s relation to innovation can be different.

Furthermore, on review of scientific literature a clear and authoritative definition of innovation networks seems to be non-existent. However, researchers in this field have made attempts to construct their own definitions. One such definition is provided below: “Innovation networks can be understood as all organizational forms between market and hierarchy which serve for information, knowledge and resources exchange and which help to implement innovations by mutual learning between the network partners”. (Fritsch et al., 1998, cit op., Koschatzky et al., 2001:5)

For the purpose of its own reference, Forfás (2004:1-2) defined “innovation networks” as independent groups of institutions and/or companies that are:

“Collaborating and competing;

Geographically located in one or several regions nationally;

Specialized in a particular field, linked by common technologies and skills; Either science-based or business related;

Either formal or informal.”

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3.2 Inter-company Networks

Attempts have been made to categorize networks based on the composition of actors. One such attempt made by Forfás (2004) divides networks into three types: Academia-academia networks

Industry-academia networks Industry-industry/inter-firm networks

Academia is referred to as universities and/or research institutes and industry as firms. It is further suggested that in inter-firm networks all the actors should be firms. However, in the same report, it is admitted that there is a “lack of a universally accepted definition of inter-firm networks” (Forfás, 2004:39).

The focus of this work is on inter-company networks, also referred to as inter-firm networks. According to above classification, all actors of inter-company networks should be firms. However, authors’ review of existing networks comprising of firms reveals that the majority of them in some way also include non-profit agencies (universities, research institutes or government bodies) 1 . For the purpose of this paper, such networks shall also be classified as inter-company networks, but firm-academia relationships will be of limited interest. This approach can be supported by Jones et al. (1997:914) definition of inter-company network, which is referred to as “a select, persistent, and structured set of autonomous firms (as well as nonprofit agencies) […]”.

Inter-company networks may involve a specific activity or a number of activities between its network partners, namely: R&D collaboration, joint product development, technology transfer, technical problem solving, training, joint-marketing, bulk purchasing, and sub- supply. (Forfás, 2004:12) By the virtues of synergy and organizational learning inherent to the network arrangement, inter-company networks are increasingly becoming the source (direct or indirect) of innovations for firms. They can therefore be aptly referred to as inter-company innovation networks. For the purpose of this work, more focus will be

1 Refer to Interactive Video Services Stuttgart example.

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on inter-company networks wherein the network partners engage themselves in joint development of innovative products.

3.3 Development Process of Inter-Company Networks

Different schools of thought are prevalent in the research community with regards to how inter-company networks develop (Batonda and Perry, 2003:1). Figure 2 in Appendix shows the development process proposed by Lechner et al (1999:313).

As described by Lechner et al (1999, p.313), the development of an inter-company network starts with the firm’s social network that embeds its social relationships, both at personnel and at organization level. The geographically-confined and over-proportional agglomeration of firms based on their social networks is defined in the first place as an industrial district. Increasing collaborative activities and strategic alliances between relatively small firms in an industrial district leads to a network arrangement, which is referred as a regional network. Late presence of a large firm for benefiting from and/or guiding the existing regional network or emergence of dominant firms within the existing regional network, transforms the regional network into a strategic network (the word “strategic” highlights the strategic objectives of large or dominant firms). The early presence of a large firm, however, could have a negative influence on the formation of network. Furthermore, strategic networks that are not confined to their regional roots are alternatively referred to as strategic non-regional networks.

It is important to understand that a regional network is constituted of several individual inter-company networks. These inter-company networks are interconnected with each other owing to the commonality of participants between them. Inter-company networks can be static or dynamic, in the sense that in the former the core of network partners do not change, and in the later the network partners continuously enter or leave the network (Prasopoulou and Poulymenakou, 2006:293). The longevity of most inter-company networks (static or dynamic) is medium-term or long-term (Prasopoulou and Poulymenakou, 2006:293), however, it is also possible that an inter-company network is

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short-lived. This may result either due to earlier accomplishment of the network objectives or failure of the network (refer to Interactive Video Services Stuttgart example).

Furthermore, the partners that can support a firm in its innovation activities can be of different types, namely: suppliers, competitors, distributors, buyers, consultants, co- suppliers, research and training institutes or government bodies (administration) (Gemünden et al., 1996:450). An inter-company innovation network formation can involve formal or informal co-operation between these partners and the firm. Formal cooperation implies legally binding contracts or coordination between the network partners, whereas informal cooperation implies vice versa (Bönte and Keilbach, 2005:1). Additionally, inter-company networks comprising of suppliers, co-suppliers, distributors and buyers, embedded strongly in the production and value chain, are distinguished as vertical networks (Koschatzky et al., 2001:5). In contrast, the horizontal networks can comprise of competitors, consultants and/or research & training institutes (Koschatzky et al., 2001:5).

Another important aspect in the evolution of inter-company networks is the guidance that serves the purpose of controlling element for the network. The network may be managed by the “invisible hand” 2 of external context or by a controller that is explicitly a part of the network (Schuh et al., 2007:503). The networks employing the former may be referred to as self-organizing networks, and the latter as guided networks (Schuh et al., 2007:503). In guided networks the interaction between network partners is explicitly planned prior to the initiation of network activities. Such a planning is performed by the controller which can either be a focal company or non-profit institutions like academia and government agencies. The focal company here implies the firm, which perceives the collective interest in formation of a network and undertakes the development of network.

2 Refers to the concept of Adam Smith’s “invisible hand”, wherein the coordination of production and

consumptive activities in a market is organized by the market itself as an unintended outcome the economic

actors pursuing their own self-interest. On similar lines, a self-organizing network is controlled by the

“invisible hand” which results from the network partners pursuing their own interests.

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Intervention of the State in network formation initiatives has proved to be fruitful. The first success was witnessed in Italy, wherein the regional government in the north-east introduced policies in 1970s to foster inter-company networks (Forfás, 2004:4). Most of the developed countries (including Germany 3 ) today have embedded this kind of initiatives in their national policies. The involvement of State is especially considered valuable in the regions where small and medium enterprises form a predominant component of the enterprise structure (Forfás, 2004:11). Furthermore, the State can foster the formation of inter-company networks either directly and/or indirectly (compare Interactive Video Services Stuttgart and Biotech Region Martinsried/Munich examples). Since small and medium enterprises often lack the necessary know-how of network arrangements or are constrained by resources, the State can facilitate the process of network formation via government agencies or provide adequate funding. Additionally, the State may devise economic policies that provide incentives to firms for participating in networks and thereby accelerate the formation of inter-company networks.

3.4 Benefits and Barriers

In the changing business environment, inter-company networks are increasingly seen as a valuable tool for sustaining or developing competitive advantages of firms and thereby promoting the overall economic development. Some of the benefits for the firms participating in inter-company innovation networks are presented below: Improved ability to respond quickly to the changing market conditions by offering

new products. (Forfás, 2004:12) Sharing of costs and risks of innovations (Forfás, 2004:11)

Organizational learning due to interaction with partner firms.

Extension of the own product range owing to the access to partner firms’ complementary technologies.

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‘Kompetenznetze Deutschland’, is an initiative by the German Federal Ministry of Economics and

Technology to foster inter-company innovation networks in Germany. It currently includes 117 regional

inter-company networks, which are the best in Germany. See figure 4 in Appendix for distribution of these

regional networks based on different fields.

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Exploiting the value of in-house technologies by taking them to market through

partner firms’ business models.

Despite of the above listed benefits, often this potential is not realized. Some of the barriers to formation of inter-company networks are presented below: Lack of awareness of the benefit of networks (Forfás, 2004:12) and uncertainty

with regards to the activities the firm will have to undertake.

Fear of competitors getting access to the firm’s knowledge (Forfás, 2004:12)

Resources in terms of time and investment discourage the firms from undertaking network formation initiatives. Managers of small and medium firms are engrossed with day-to-day transactions, leaving them with little time to think on long-term basis.

Presence of large firm hinders the cooperation between smaller firms as they

compete with each other for positioning themselves in the larger firm’s value chain (Lechner et al. 1999:313-314) Risks of network failure leading to loss of invested time and capital.

4 Concept of Network Configurations

The concept of inter-firm network configuration in this paper is based on works of Bensaou and Venkatraman (1995) and Gemünden, Ritter and Heydebreck (1996), as they seem to be the pioneers in reporting the “configurations at the level of inter- organizational relationships” (Bensaou and Venkatraman, 1995:3).

However, neither these authors (despite writing specifically about configuration), nor other sources of scientific literature researched provide a definition of network configuration. This paper suggests that from the two research works mentioned above it can be understood that (1) networks are referred to as n-dimensional, where n is a discrete number, (2) dimensions can be described by a number of indicators, and (3) configuration can be understood as a description of a distinctive type of inter-firm network arrangement, characterized by a set of indicators with specific values. Furthermore, a set

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of configurations acts as a framework to classify inter-firm networks. This is a very simplified representation indeed, but it explicitly explains how configuration is understood in this paper, and this understanding is based on empirical studies of established researchers.

To proceed with an example of a set of configurations, consider the one proposed by Gemünden et al. (1996) who analyzed companies from the German high-tech industries. The set is comprised of seven configurations: the island, the manufacturer, the toddler, the highway, the visionary, the competence acquirer, and the spider (Gemünden et al., 1996:453-455). These names do not seem to make much sense when taken out of the context but referring to the understanding of configuration provided above, each of them describes a particular type of network arrangement. For example, consider the manufacturer:

“This type of company interacts with suppliers and customers much more intensively than with universities and consultants. Manufacturers are heavily oriented towards their upstream and downstream production partners. The overall degree of interaction with external partners is low.” (Gemünden et al., 1996:455)

Following the research based on empirical data, out of 321 German companies from hi- tech industries categorized in two dimensions, 64 were best characterized by the manufacturer configuration. When referring to the term dimension, this paper refers to Gemünden et al. (1996), since they use specifically this term. However, explicit definition is not provided for this concept in either of the two papers. On the other hand, both papers present some viewpoint, based on which a set of configurations is developed. For example, Gemünden et al. (1996) proposed that different firms need different kinds of resources to be successful, and that because of this need they would choose different types of actors as their network partners. Bensaou and Venkatraman (1995:6) argue that inter-firm relationships in a network can be seen from the information-processing view, and taking this viewpoint, they see two dimensions – information processing needs and information processing capabilities.

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After deciding on dimensions, as a next step in compiling the set of configurations, both papers provide a list of indicators. An indicator can be understood as a measurable variable that can be assigned a value, which can be either of binary (i.e. yes/no), or discrete (for example, in the scale 1 to 5), or possibly continuous type. The values are obtained empirically, by sending out questionnaires to companies, and then the data is analyzed statistically. Statistic techniques applied are very individual and the researcher has to be proficient in selecting appropriate techniques and methods, as well as in interpreting the results. To discuss this complexity in detail is beyond the scope of paper, but it is worth noting that software (such as SPSS) uses statistical methods (such as Variance Ratio Criterion (VRC)) to determine the number of clusters. This is important because it means that the number of clusters is chosen in a most possible objective method. Finally, a cluster, or a configuration 4 , is given a name (such as the manufacturer, discussed above) and general conclusions are made.

From what has been explained above, the important implication for this paper is that dimensions are implicit in the viewpoint taken towards inter-firm network arrangements. The scope of this paper does not allow for own empirical investigation, so no specific viewpoint has been taken by the authors. Consequently, instead of constructing a conceptual model and deriving the set of configurations, just some dimensions are provided for the purpose of exemplification:

Strength of relationships between actors

Relative importance of network partners Innovation performance of the network

4 The term “cluster” is used in statistics, but when describing networks, researchers tend to use

“configuration” instead.

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5 Examples from the German Industry

5.1 Interactive Video Services Stuttgart

In this example, based on a study by Fuchs and Wolf (1997), government’s role as a coordinator is discussed, as well as the aspect of horizontal network relationship, as well as the attention to the risks that could lead to network failure is drawn. The structure of this network is depicted in Figure 3 in Appendix.

Government has access to a wide range of information which helps its agencies to set up inter-firm networks. Not all of them are successful, however, and some simply fail due to various reasons. This example illustrates a failure of inter-firm network.

The government of Baden-Württemberg, a state in South Germany where this project took place, takes an active role in spreading innovation locally. After discussing with managers of regional corporations, an idea of a pilot project on interactive video services in Stuttgart emerged in 1993/1994. The goal was to induce regional actors to cooperate and jointly develop new interactive video products. The participants were major corporations, Deutsche Telekom, Alcatel-SEL, Bosch Telecom, Hewlett Packard, and IBM, while government acted as a facilitator, and network was complemented by academic institutions. The corporations, even though multinational in general, were active in that region. For this project they were not competing with each other and took responsibility for different areas.

The network represents a good example to the discussion of what is an inter-firm network. The structure shows a number of actors, both public and private. The source stresses the importance of firms, and point out that their relationships were much more important looking from the perspective of a network than those with other actors, and this is why it makes more sense to refer to it as an inter-firm network example, and not industry-academia network.

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Despite all the good intentions of government, this network failed when firstly IBM, and then Deutsche Telekom withdrew. As to the reasons of failure, Fuchs and Wolf (1997:281) cite the problems of selectivity, i.e. the decisions in the very beginning of network formation. On the other hand, the researchers cast light on the fragility of networks where competitors try to cooperate. They argue that problems arise due to lack of commitment from actors in network functioning, especially in network governance area, as well as due to technical complexity and market uncertainties (Fuchs and Wolf, 1997:282-283).

Even if the multi-nationals were not competing in this network, their out-of-the-network competition in different areas negatively influenced the collaborative activities within the network. Conclusively, companies face risks when joining into networks and it is important that all actors in a network take them into account, do their best to avoid them and learn from cases like Interactive Video Services Stuttgart.

5.2 Biotech Region Martinsried/Munich (BRM)

Based on the number of regional networks, biotechnology is one of the leading fields within Germany. This is supported by the fact that biotechnology regional networks are the highest in number among other networks under “Kompetenznetze Deutschland” initiative (see Figure 4 in Appendix). The selection of this example for analysis is to reflect the importance of this field. In addition, here the role of coordinator is discussed further, the aspect of small and big companies in a network is touched, as well as reference to network evolution is made.

Powell and Brantley (1992, cit op. Lechner and Dowling, 1999:320) claim that one of the outcome of network is learning, and therefore in some industries where knowledge is often renewed and not concentrated (such as biotechnology), the network formation should be more intensive. The biotech industry is often characterized by small start-up companies which are dependent on academia for the basic research. However, bigger pharmaceutical companies seeing industry potentials are more commercialization-

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oriented and do not seek academic contacts so much (Powell, 1998b, cit op. Lechner and Dowling, 1999:319)

In general, funding of public research institutions is crucial for the development of biotechnology, as summarized by Trippl et al. (2006:2), and that’s where the government agencies step in as facilitators, as well as coordinators. Their own results (Trippl et al., 2006:24) show that “[…] funding and provision of infrastructure are still very important. They are, however, combined with newer forms of intervention such as brokering, advice and cluster management services, resulting in a relatively balanced mix […]”.

In this example, government agencies acted exactly in the above mentioned way – they provided funding, as well as organized a competition to create industrial districts for biotechnology in Germany. The competition was won by Biotech Region Martinsried/Munich, which was strategically suited best. The established network was a coordinated one, but instead of a governmental agency, a private company Bio-M AG undertook the role of coordinator and facilitator. It evolved as an initiative of representatives from academia, economic institutions, firms and associations, and later on supervised the distribution of funds. (Lechner and Dowling, 1999:320-325). The important difference from the previous example is that the actors here are more diverse, more numerous and such initiative seems to have more advantages in managing the network.

In this example, other actors are academic institutions, venture capital firms, large (multinational) firms and small firms and start-ups (Lechner and Dowling, 1999:323) that have different relationships with each other. This fits well with the viewpoint of Gemünden et al. (1996:450) where it is recognized that different firms need different resources, and thus different network partners. For example, the strength of ties between venture capital firms and small and medium enterprises is probably higher if compared to large firms, since the latter do not need external funding.

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5.3 Other Examples

The above mentioned examples could be analyzed in more detail, since adequate references were available. However, not many well-researched case studies of inter- company networks in German industry are available, at least in English language, and therefore many interesting examples are awaiting academic attention. Based on the information from company websites and/or press-releases, we provide a few more examples that illustrate important aspects of inter-firm networks.

In the examples so far, in one way or another, government agencies have been involved in network. As mentioned above, however, instead of government agency, a firm itself can act as a facilitator and coordinator of the network, as a focal firm. Two examples illustrate this case, DHL Innovation Network and Siemens Innovation Network. DHL has taken a more traditional approach and has formed a strategic partnership with other large firms (IBM, Intel, Philips and SAP) for jointly developing new technologies to increase the efficiency of the supply chains. Siemens Medical Services goes one step further, and in its Innovation Center section invites firms to join their innovation network. Four types of possible cooperation is listed on company website: research cooperation, equity investments, co-development agreements and licensing agreements or acquisitions. Another interesting example is Clean Energy Partnership between automotive and energy companies for jointly developing hydrogen fuel technology. There the two actor groups support each other by complementary technologies, but groups consist of competing companies.

6 Conclusion

This paper focuses on inter-company networks and provides insight into different aspects of such collaborative arrangements. The concept of network configurations is then introduced, followed by analysis of representative examples of inter-company networks from the German industry. The attempt of complementing theoretical aspects with examples intends to provide practical understanding of the complex relationships that exists between firms engaging in joint development of innovative products.

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Germany is considered as one of the leading countries in the world in terms of generating innovations, which is reflected by the large number of innovation networks existing currently in the country. The increasing interest of government in fostering the economic development by utilizing inter-company networks as a tool, is seen in one of its initiatives like “Kompetenznetze Deutschland” that represents 117 leading innovation networks of Germany.

In the start of the paper, it was discussed how changing business conditions resulted in emergence of inter-company networks. It will be interesting to see how economical environment will be affected by this form of quasi-organizations in the future.

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Appendix

i

ii

Figure 4: Distribution of Regional Networks (Kompetenznetze Deutschland) based

on Fields

Source: Self-construction modeled after: Federal Ministry of Economics and Technology,

2006, P. 10-11

iii