Virtual enterprises (VEs) are a result of e-business which emerged as a reaction to fast evolving market trends. We discuss organizational as well as legal implications. These are of importance for a proper functioning of this new form of business partnership.
This paper will show the needs for virtual enterprising and obstacles to the future development of which the issue of trust is one of the most important. Especially consumers’ trust could be enhanced by a clear regulation of VE’s liability which has so far not been covered in the literature. We will therefore present several models on possible liability rules and a concept which meets the requirements of providing adequate economic incentives for the participating companies and being easy to handle by consumers as a policy recommendation for future harmonization of Member States’ National Law.
Table of Contents
1 Introduction
2 Virtual Enterprise defined
3 Drivers of virtuality
3.1 Meeting global challenges
3.2 Changing market demand
4 Obstacles to virtual enterprising
4.1 The market entry point
4.2 The issue of trust
4.3 Accounting for opportunistic behaviour
4.4 Information Infrastructure
4.5 Open legal questions
5 Models of liability
5.1 The problem
5.2 The analytical model’s setup
5.3 Liability of the Virtual Enterprise only
5.4 Liability of the leading company only
5.5 Liability of all network companies
6 Proposal of a hybrid liability model
7 Conclusion
Objectives and Core Topics
This paper examines the organizational and legal implications of virtual enterprise networks in Europe, specifically focusing on the challenges of establishing clear liability rules to enhance consumer trust and provide economic incentives for collaboration.
- The structural definition and characteristics of Virtual Enterprises (VEs)
- Driving factors for virtuality in response to globalization and market demand
- Critical obstacles including trust, opportunism, and information infrastructure
- Economic analysis of various liability distribution models for network partners
- Policy recommendations for a hybrid liability framework in European law
Excerpt from the Book
4.2 The issue of trust
In a networked production system interlinked by information system technology only without extensive personal contact maybe even covering different cultures trust becomes a crucial issue because without trust, commitment to the goals of the organisation could waver (Mezgár 2003).
Trust has been defined as the expectation by one person, group, or firm of ethical behaviour on the part of the other person, group, or firm in joint endeavour or economic exchange. So trust results from an expectation of fair behaviour and a level of understanding of shared business practices (Kasper-Fuehrer/Ashkanasy 2001, Noll 2002). The formation of trust usually requires interactions in more personal ways, which is often missing in a VE (Fariselli et.al. 1999).
Trust is also history-dependent. This can pose a problem too since a VE may entail no past history nor any plan for future association. But trust plays a key role in the electronic market that involves uncertainty and lack of legal protection. In e-commerce, for example, most people hesitated to purchase online because of a lack of trust (Noll 2002). Trust is also an important factor in establishing successful innovating groups. It establishes a foundation for cooperative relations.
Summary of Chapters
1 Introduction: Introduces the relevance of virtual enterprise networks as a response to e-business and discusses the regulatory uncertainties hindering their full potential in Europe.
2 Virtual Enterprise defined: Describes the VE as an opportunistic, temporary alliance of independent enterprises that leverage computer networks and core competencies to achieve market objectives.
3 Drivers of virtuality: Analyzes the macro-economic and market pressures, specifically globalization and dynamic demand, that force SMEs to adopt network-based production models.
4 Obstacles to virtual enterprising: Examines significant barriers such as the lack of commercial entry points, trust deficits, opportunistic behavior, information infrastructure, and unresolved legal questions.
5 Models of liability: Develops an economic model to evaluate different liability frameworks, assessing the implications of holding either the VE, the leader, or all participants accountable for product failures.
6 Proposal of a hybrid liability model: Proposes a dual-layered liability system to ensure consumer protection and provide appropriate incentives for network partners while maintaining operational flexibility.
7 Conclusion: Summarizes the need for harmonized European legal frameworks to secure the future success and trustworthiness of virtual enterprise models.
Keywords
Virtual Enterprise, E-business, Liability, Consumer Trust, Agile Manufacturing, Information Infrastructure, Opportunistic Behaviour, European Law, Networking, Economic Incentives, Supply Chain, Collaboration, Regulatory Uncertainty, Business Partnership, Hybrid Liability Model
Frequently Asked Questions
What is the primary focus of this research?
The work investigates the organizational and legal challenges surrounding Virtual Enterprises, with a specific focus on developing an effective liability framework to protect consumers and incentivize cooperation among independent firms.
What does the term "Virtual Enterprise" (VE) imply?
A VE is defined as an opportunistic, temporary alliance of independent companies that collaborate through IT networks to share core competencies and respond to specific market opportunities without a traditional hierarchy.
Why is trust considered a major challenge for these networks?
Trust is critical because VEs lack the hierarchical control and long-term history of traditional firms, making it difficult to ensure ethical behavior and commitment in a setting defined by electronic interaction and short-term project cycles.
How does the author analyze liability distribution?
The author uses a simple economic model to determine how different liability rules—holding the VE itself, the leading firm, or all network partners liable—affect quality investments and the ability to satisfy customer claims.
What is the proposed solution for the liability problem?
The author suggests a hybrid liability model where the VE coordinator is held directly liable to the customer for ease of claim, while the VE administration retains rights to internal redress against the specific partner responsible for the defect.
What role does the EU play in the context of this paper?
The EU is identified as a necessary regulator; the author argues for harmonized Directives to standardize liability and legal personality across Member States, as current national differences hinder cross-border virtual business.
How does the lack of a "commercial entry point" affect a VE?
Because VEs are temporary and lack a long-standing reputation, they struggle to gain consumer confidence compared to established brands, necessitating strategies like partnering with well-known firms or limiting product range.
What is the significance of the "hybrid" nature of the proposed model?
The hybrid model balances external simplicity (the customer deals with one entity) with internal fairness (the actual culpable party within the network can be held accountable through administrative redress).
- Quote paper
- DDr. Jürgen Noll (Author), 2005, Virtual Enterprise Networks in Europe, Munich, GRIN Verlag, https://www.grin.com/document/118908
