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Coopetitive Ecosystem: The Dynamic Trends in UK SMEs
Coopetitive Ecosystem: The Dynamic Trends in UK SMEs Abstract Small and Medium sized Enterprises (SMEs) exist symbiotically with other businesses that may also be SMEs with similar challenges. In a qualitative study exploring the concepts of success and performance within the service sector, the behaviour of SMEs is investigated and it is clear that their ecosystem is key to their sustainability. A critical aspect in their sustainability is their relationship with others businesses. How they use their ecosystem depends often on the maturity of the SME. Young SMEs need to acquire rapidly a range of skills and visibility, whilst more mature SMEs have generally developed their skills but still have to engage in the market place. The research confirms their ecosystem is a complex set of interacting networks. Often through their ecosystem, they gain from collaboration with and referrals from competitors, in dynamic symbiotic relationships. Keywords: Entrepreneur, Ecosystem, Entrepreneurship, Competition, Cooperation, SME, Innovation, Employees. 1
Introduction
Small and Medium sized Enterprises (SMEs) are a diverse set of businesses reflecting the goals and ambitions of the owners/managers. Lack of knowledge and funding are two critical features for the failure of SMEs. Specifically knowledge has been regarded as a competitive advantage that leads to benefits (Tsai, 2002). Knowledge can be acquired from the ecosystem they inhabit. Their ecosystem comprises their suppliers, their clients/customers and other business including competitors. Understanding an SME’s ecosystem provides insight into their sustainability, which allows policy makers to provide appropriate environments to enhance SME survival. Competitors may serve an important role in the survival of the SME, since often they gain knowledge from them (Yang and Chen, 2008). They also provide referrals and engage in collaboration for symbiotic gains. A key issue in the research is the differentiation between young and mature SMEs with their use of their ecosystem which may be collaborative and competitive. This research also has established the increasing complexity of the ecosystem with greater use of social media. The paper will initially review the relevant literature, followed by a description of the methodology. It will then explore the behaviour of young and more mature SMEs. This will be followed by a discussion of the ecosystems and a conclusion. 2
Literature Review
SMEs, especially young SMEs, lack knowledge and often acquire it from their ecosystem to aid their competitive edge (Rogers, 2004;Propris, 2002). The ecosystem will consist of a range of actors including their competitors. The interaction with their competitors may provide mutually beneficial outcomes which can be described as a coopetitive dynamic environment (Li, 2015), since the relationships will be informal and loosely structures. Partially it will be knowledge sharing, but it can be collaborative activities, where both parties gain competitive advantages against the market. Coopetition in SMEs Competition is ubiquitous and often is seen as potentially damaging to a business’s survival (Keh et al., 2007;Chetty and Wilson, 2003). An SMEs’ lack of competitive edge can be attributed to many causes, 1
Coopetitive Ecosystem: The Dynamic Trends in UK SMEs such as lack of resources or technical support, paucity of innovation, and often a lack of strategic shortterm and long-term planning (Singh et al., 2008;Xiong et al., 2006;Urbonavicius, 2005). The extant literature proposes that SMEs improve their capacity by employing experienced staff, understand their development goals, establish appropriate organisational structure and culture, understand the market trends, and enhance their products or service quality etc. (Rose et al., 2006). SMEs strengthen their position by bringing in new technology and efficient working procedures (Bouncken and Kraus, 2013). Collaboration with different firms enables SMEs to share knowledge, adapt quickly to the fast-changing business environment and improve working efficiency (Holmström et al., 2002) Collaboration with external partners is often essential for firms to pass the “valley of death” (Enkel et al., 2009;Chesbrough, 2003). Enkel et al. (2009) propose firms to open their research and development and collaborate even with their competitors due to coopetition enrichment. Co-development with partners even competitors, co-invention with customers, developing knowledge acquisition process is a trend driving global innovation and bring opportunities (Bos‐Brouwers, 2010). Coopetition can bring with it access to additional working experience and resources, enriching technological diversity (Quintana-Garcia and Benavides-Velasco, 2004). Knowledge Driven Environment and Organisational Performance Performance of an organisation is geared to its workforce (De Jonge and Dormann, 2003) since creativity and problem solving can be enhanced in a knowledge sharing environment (Ardts et al., 2010;Carmeli and Spreitzer, 2009;Carmelli et al., 2006). A knowledge driven environment is more likely to aid SMEs’ performance and success (Wilkinson, 1999). Ecosystem A SME’s ecosystem consists of a set of intersecting networks. These networks can determine its success. Walter et al. (2006) define network capability as a firm’s ability to develop and utilise interorganisational relationships to gain access to various resources held by other actors. From resource based theory (Barney, 1996) network capability is a non-transferable resource which enhance firms’ efficiency and effectiveness, being of utmost important to SMEs who rely their business mostly on referrals and word of mouth, (Eisenhardt and Martin, 2000;Makadok, 2001). It can also viewed as dynamic capability theory (Eisenhardt and Martin, 2000), and organisational knowledge based theory (Grant, 1996;Conner and Prahalad, 1996). Kale et al. (2000) describes the quality of a network as relational capital, and this may be more important for SMEs than others. Well-established SMEs tend to build more coopetitive networks with both partners and competitors (Zeng et al., 2010). Obviously increasing degree of coopetitive networks can have great effect on improving a firm’s performance especially for start-up SMEs and thus achieving long-term success (Zeng et al., 2010). . SMEs are encouraged to develop their social networks, professional networks, exchange relationship networks and other networks since they can be profitable (Dyer and Singh, 1998;Gulati and Gargiulo, 1999). Building upon these networks with partners or competitors can bring competitive advantage by gathering resources as well as market information, problem solving, collaboration support, venture funding, investment et al. (Klofsten and Jones-Evans, 2000;Hoang and Antoncic, 2003;Clarysse and Moray, 2004). 3
Methodology
This study is pragmatic and based on both a survey of 82 SMEs and 24 depth interviews with a range of SMEs in primarily the service sector, including education service, management consultancy firms, marketing agencies, software firms, catering service and law firm. Most of interviewees were CEOs, 2
Coopetitive Ecosystem: The Dynamic Trends in UK SMEs managing directors, founders, business partners participated in the interview, and three of the interviewees were with employees. The semi-structured interviews lasted for around 1 hour and the questions mainly focused on the nature of their business, their definition of SMEs, their view of success, the measures use to assess performance, their potential business opportunities and risks, and how they maintain symbiotic through coopetition. The survey focused on questions similar to the interview questions. The interview responses were recorded and the transcripts allowed thematic analysis. The survey response was used to triangulate quantitative responses. 4
Research Findings
The use made of their environment by SMEs differs according to their maturity. Using Churchill’s stages of development (Lewis and Churchill, 1983), SMEs are split into young SMEs, Stages 1 to 3, and mature, Stages 4 and 5. The findings will start with young SMEs and their coopetitive ecosystem, followed by exploring mature SMEs. 4.1
Young SMEs
Young SMEs are still at the business development phase. Hence they are geared to using their environment to acquire knowledge and enhance their visibility. Their immediate ecosystem will depend on the managers and employees, and the social network. This internal network can provide a rich environment for sharing and developing knowledge. Managers have to harness this knowledge within the firm as a CEO from a marketing firm said “Managers should make sure all their employees work together”. Often the firm is enhanced by the experience of the manager from their previous employment at another firm. An example is from a mobile phone servicing company, “The managing director … he has got a lot of experience that he worked in Nokia before… he has got a lot to share, also, I think it is a very strong learning environment in the company. There is very flat hierarchy, the manager will listen to everybody. Everybody learns from everybody, it is very open to new ideas”. This illustrates also that you need the organisation to have an appropriate structure to allow internal transfer of knowledge. The previous quote also highlights that knowledge comes also from the employees previous experience gained with other firms. This could be considered part of the coopetitive ecosystem. It becomes more dynamic dependent on the nature of the sector and movement of employees around the ecosystem. Bringing in skills form elsewhere is illustrated by an owner “now it is ready and set up, and running smoothly, it ready now just down to somebody to sales and account manager to grow the business”. One CEO also confirmed the advantage to recruit experienced employees “Through their (previous) relationships, you can get work come in.” It was confirmed the collaboration and synergy effect among employees lead to positive collaboration and bring positive influence. Start-up SMEs may use formal channels and entrepreneurial clubs. A marketing director of a music software development firm said “Every time there is a big exhibition, they will have an exhibition centre … So I will go in their place”. One CEO also confirmed their engagement in business events “Trade shows, so we go to a couple of trade shows every year”. Quite a few SMEs demonstrates their attendance of business networks or events enable to increase their visibility and look for more collaboration and clients. As confirmed by a senior staff “we go to business networking club in XXX. It is a small business network. They are all different businesses. We pick up a few clients that way”.
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Coopetitive Ecosystem: The Dynamic Trends in UK SMEs 4.2
Mature SMEs
Whilst mature SMEs still need to ensure there is knowledge sharing, they may focus more on procedures to achieve. For example a marketing director at a law firm confirmed they used blog for their entire firm “I am about to introduce is a new blog internal web blog service so that we can share knowledge more easily”. Mature SMEs not only share information within own organisation, they are more likely to collaborate with their clients and open market. A marketing director of a semiconductor firm indicate they are more willing to share ideas with their clients to improve product and working efficiency “Rather than produce parts, we now go to and work with our customer. We share ideas with our customers. We come to them with our solutions”. Therefore, coopetitive ecosystem brings both internal, higher efficiency, and external, better client relationship, benefits. The research found SMEs not only collaborate with partners, they also collaborate with their competitors. A founder from PR service highlighted this openness saying “we keep an eye on our competitors– we meet them and we get on great with them. It is just we do not attack them in any shape or form. We work together with many of our competitors”. Similarly a managing director of a mature law firm also confirmed their coopetitive ecosystem “It is quite cooperative in fact a lot of our work we get from other lawyers so in theory we compete with them as well. No doubt we are competing on some projects but on the other hand we do get business back from them. It is a kind of synergy between cooperation and competition”. The referrals may be to deal with periods of severe demand or because of type of knowledge required by a client. Collaboration exists between mature firms and their competitors since both parties get benefit knowledge and information to develop both businesses. Matures SMEs also rely on ecosystem to generate business. As confirmed by a business owner “… you will get good network in business then competitors are not that important; For the small company, it will based on the relationship and individual, …collaboration is you have different spot work with you, some can trust me, or they trust others, through that relationship, you can get work come in. It will bring me more work and a lot of resources”. The CEO of an employee training firm also confirmed the advantage to collaborate with competitors and association with competitors to support each other has become an informal association in their industry “The idea is we want to provide the platform for these trainers come together, to get to know each other’s materials and therefore to have trust in each other and know each other’s clients. So it was a referral system for each other, we associate with each other, sometime I work for them and sometimes they come along work for me. I would contract somebody that I am not good at doing”. Relying on this coopetitive ecosystem, mature SMEs are more likely to reach to more resource for their development. Many mature SMEs confirmed they have some kind of coopetition either formally or informally.
4.3
Coopetitive Ecosystem
Ecosystems, based on interacting networks, is a recurrent theme in the research. SMEs are embedded in an ecology which provides opportunities in terms of gathering knowledge, making contact to collaborators and raising visibility. Many of those interviewed reflected the desire to find customers and increase visibility through networking. Trade shows, conferences and other events are typical examples of tapping into networks as confirmed by many start-ups “We have serious strategies to gradually increase the visibility. Every time there is a big exhibition. So I can go and sit in their stand, in their place”. A start-up software development firm argued the necessity of using social media network to increase their visibility and develop their businesses “And I think that around the 15,000 likes in Facebook; We’ve got about 2,000 Twitter followers I think roughly, I think for us LinkedIn has 4
Coopetitive Ecosystem: The Dynamic Trends in UK SMEs really been the number one driver of growth.” As illustrated by a senior staff who confirmed the collaboration through network “I can say through our networking… we tend to talk or join some events”. A CEO of a software development firm argued their ways to enhance business “Trade shows, so we go to a couple of trade shows every year.” Visibility is also an important issue for mature businesses and the use of social media is also seen as a useful tool to achieve this. One CEO at a mature catering service firm argued the importance of customer network through social media “For instance, I put something in Facebook, so people can see it and it brings people in. Well, people like the stuff as well. Start-up SMEs’ main task is still increasing their visibility and reputation through network. Yet this may be illusory without it turning such into customers/clients. However, mature SMEs development depend a lot on networking with other businesses that can aid such as referrals. A marketing director at a mature law service firm argued “So most business we get is coming from either other lawyers, or other surveyors, providing work to us … I know it seems quite odd, but if I had to estimate I would say ninety five percent of work we get comes from recommendation”. Also confirmed by another career service firm of referrals from their network “We do not go to speak to them (Clients) directly. Quite often we get references from people who work in London….it is word of mouth”. It demonstrates the ecology among collaborators. It is not all collaboration but that does not necessary mean that we treated other SMEs as opponents for example one business owner at a mature PR firm confirmed the benefit of collaboration with competitors “We keep an eye on our competitors but we do not have any – we meet them and we get on great with them. It is just we do not – we do not attack them in any shape or form. We work together with many of our competitors. It might be described as symbiotic”. Partially this might be driven by lack of capacity or in order to gain from a competitors’ skill base. An aspect is the use of networks to gain information from trade fairs and events, because some firm confirmed they are more likely to get a lot of qualitative feedback from both customers and other firms and the information they give is usually very good. Yet a founder of employee training firm appreciate the surround network “Your surround with the right people. You believe in yourself…and surround with support people”.
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Conclusion
This paper has explored SMEs ecosystem and identifying the collaborative and competitive nature. It illustrates that business within the service sector do live within a coopetitive ecology for their mutual benefit. The benefits are often knowledge and resources. Young SMEs focus knowledge acquisition and visibility, whilst mature SMEs collaborate readily with competitors. It should be borne in mind that diversity in the service sector is a major issue when discussing SMEs. These businesses are more idiosyncratic dependent on the owner than can be easily pigeon holed into specific group. The importance of ecology is crucial to many SMEs and knowledge sharing is becoming increasingly vital with both partners and competitors. The network is viewed as any opportunity to develop contacts and is informal. It might be a trade event or business network with collaborators or competitors, but also social media. These networks provide information and also customers.
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Coopetitive Ecosystem: The Dynamic Trends in UK SMEs
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