Internal resources, external network, and competitiveness during the growth stage: a study of Taiwanese high-tech ventures (1).

This study explores the performance implications of internal resources and external networks for entrepreneurial firms. A relationship of trust among network members is essential because of the high risk during the initial start-up stage. However, once high-tech firms initiate mass production and enter the growth stage, whether trust influences competitiveness more than resources becomes uncertain. This study examines Taiwanese firms to elucidate the main influences on firm competitiveness. In conclusion, the result indicates the competitiveness of high-tech firms during the growth stage is determined by firm resources and the willingness of support firms to cooperate--where willingness is determined by the trust of the support firms in the high-tech firm but is unrelated to firm resources.

Introduction

The influence of network ties in entrepreneurial firms recently has received considerable attention (Hite & Hesterly, 2001; Hire, 2005; Jarillo, 1989; Krackhardt, 1995; Larson & Starr, 1993; Larson, 1992). The operating model of Asian firms, with its emphasis on networks, has greatly attracted particular interest from Western scholars (Hamilton & Biggart, 1988). After comparing the market, hierarchy and network transaction models, scholars have concluded that "trust" as the foundation for networks offers another alternative governance structure (Bradach & Eccles, 1989), and can effectively reduce interfirm transaction costs (Gulati, 1998). In the Asian business environment, which is relatively weakly regulated, trust-based transaction methods are particularly important (Khanna & Palepu, 1997).

Besides reducing the cost of interfirm transactions, trust is also considered a form of social capital (Lin, Li, & Chen, 2006). Firms with high trust benefit in various areas, including the acquisition of information, resources, and business opportunities (Nahapiet & Ghoshal, 1998). Trust relationships can also influence organizational learning. For example, Schildt, Maula, and Keil (2005) proposed that different governance modes (simultaneously implying different levels of trust) for conducting external corporate ventures are likely to differ in their degree of support for explorative and exploitative learning. Empirical research also shows that Asian firms can enhance their global competitiveness through strategic alliances and enterprise networks (Killen, Hunt, Ayres, & Janssen, 2002).

Nevertheless, some scholars have argued that an excessive emphasis on trust and relationships neglects the nature of a firm's pursuit of profit. Possibly, in traditional industries, personal networks and social capital are clearly important; but in the highly competitive and rapidly changing high-tech industry, trust and interpersonal relationships are comparatively unimportant during the growth stage. For example, Nesheim (2000) questioned the importance of interpersonal networks, and believes that while Asian enterprise startup models previously depended on relationships, they now depend on know-how. Moreover, Wu (1999) contends that the networks of close connections among firms in traditional industries are largely absent in high-tech industries.

This study examines Taiwanese high-tech firms to better understand the influences on firm competitiveness during the growth stage. The "growth stage" was defined as the first year of operations following the formal start of mass production. (2) Two firm-level theories, the resource-based view of the firm (Wernerfelt, 1984; Barney, 1991; Dierickx & Cool, 1989; Grant, 1991; Rumelt, 1984) and social capital theory (Nahapiet & Ghoshal, 1998; Chung, Singh, & Lee, 2000; Lin et al., 2006), are adopted to explain the variation in competitiveness. While other authors have explored earlier stages (see also Hite & Hesterly, 2001), this study focuses on a later stage, an approach that is necessary to extend the theory and understanding of entrepreneurial networks. During the initial start-up phase, as start-ups face extreme levels of risk, resource acquisition becomes difficult, and thus the importance of entrepreneur interpersonal networks is self-evident. However, this study investigates the importance of relationships during the growth stage, when firms are more mature and face increased competition. Key success factors during initial start-up may be market or prototype development, but once mass production begins, the challenge can change significantly. For example, production efficiency and quality control may become more important. Previous research on entrepreneurship contains little discussion of start-ups during the growth stage, and influences on competitiveness during this stage are also unclear. Therefore, the key questions herein include the roles of firm resources and network relationships during this stage of firm development, and their influence on firm competitiveness.

To summarize, the close connectivity in the previously studied networks of traditional industries has not been replicated in the high-tech industry. This study investigates the influence of trust relationships and firm resources on the competitiveness of high-tech firms during the growth stage using Taiwanese high-tech firms as subjects.

The rest of this article is organized as follows. Section 2 draws the resources-based view and social capital theory to develop hypotheses regarding the relationships among trust, firm resources, cooperative willingness of support firms and competitiveness during the growth stage. Section 3 then introduces the sample, measures, and survey process used in this study. Next, section 4 presents the empirical results. Section 5 discusses the findings of this study. Conclusions are finally drawn in Section 6, along with theoretical and practical implications, limitations, and future research directions.

Literature Review and Hypothesis

To explain the variation in competitiveness among entrepreneurial firms, this study used two guiding firm-level theories: the resource-based view of the firm and social capital theory.

Resource Base and Core Competence

The resource-based view (RBV) can be attributed to Penrose (1959), who proposed that sustained firm growth is based on internal firm characteristics, such as management capability and economies of scale of technological expertise. Only when Wernerfelt (1984) proposed the concept of resource position barrier did scholars begin to consider that sustainable competitive advantage derives from differentiated firm resources. Through the efforts of Rumelt (1984), Dierickx and Cool (1989), Reed and DeFillippi (1990), Barney (1986, 1991), Grant (1991), Mahoney and Pandian (1992), and Peteraf (1993), has RBV become a major consideration in developing firm strategies. The core competence view proposed by Prahalad and Hamel (1990), the competence-based competitive strategy proposed by Heene and Sanchez (1997), and the dynamic capability proposed by Teece, Pisano, and Shuen (1997) all conceptually resemble RBV.

RBV holds that, rather than continuously adjusting the firm operating category to fit environmental changes, a better strategy is the sustained construction of core resources; enterprises with abundant resources can then survive and grow owing to their competitive advantages, regardless of external environmental changes. Strategically valuable core resources should possess tacitness, complexity (Schoemaker, 1990), exclusivity (Weruerfelt, 1984), the inability to be rapidly accumulated (Dierickx & Cool, 1989), and the characteristic of being "valuable, rare, and inimitable" (Barney, 1991), thus preventing them from being easily acquired by other companies.

Social Capital: Networks and Trust

Organizations depend on their environment to provide resources (Pfeffer & Salancik, 1978). Social capital theory suggests that a firm's external networks contribute significantly to firm performance. Organizations transact with suppliers and other partners to acquire external resources to produce products/services at competitive prices, while maintaining the quality necessary to attract and retain customers. External networks influence firm ability to mobilize environmental resources, attract customers, and identify entrepreneurial opportunities (Lee, Lee, & Pennings, 2001).

Western scholars discussing networks generally stress interfirm networks, which they frequently term as business networks (Forsgren & Johanson, 1992); moreover, business networks that include both firm upstream and downstream relations are often labeled production networks (Yu, 2000). Interpersonal relationships are the main concern when considering the network relations of Asian firms (Kienzle & Shadur, 1997). Individuals are the nodes that mesh interpersonal networks together, and the ties between them can be affectively or economically oriented (Chang & Tan, 1999). For example, Hite (2003) identified three components of embedded network ties: personal relationships, dyadic economic interaction, and social capital. Different combinations of these three components suggested a classification typology of seven types of embeddedness.