Networking: Not Just for Big Business
By Jessica Lipnack and Jeffrey Stamps
from The New York Times, Sunday,
August 1, 1993
Reprinted with permission.
Networking! This may be the biggest buzzword in business today.
In fact, it's so big that it even needs other buzzwords - virtual
corporations, strategic alliances - do to all the work required
Oddly, though, these terms are usually confined in the United States
to the activities of large companies. Few people discuss networking
- various forms of organizational collaboration - for small businesses.
This is doubly odd because the Clinton Administration, viewing small
business as the engine of economic growth, has put it at the top
of the economic agenda.
Nonetheless, networking can work wonders for small businesses and,
as the president suspects, for the economy as well. The best proof
for this proposition comes from Denmark.
In the 1980's, Denmark's economy looked like ours today: high unemployment
and frightening trade imbalances. But, beginning in 1989, the Danish
Government offered financial aid to groups of three or more small
companies, usually in the same or related industries, that are willing
to develop ideas on how they could work together. The response was
great. Within just 18 months, 3,500 small companies - one-third
the nation's total enterprises - formed networks.
The results were not long coming. In 1991, Denmark reversed its
negative balance of trade with Germany for the first time in 32
years. And in 1992, Denmark enjoyed the world's highest positive
trade balance per capita, outpacing even Japan. Other factors, such
as an industrial modernization program, helped Denmark's economic
resurgence, but Danish economists say the small-business networks
played an important role.
In turning to these networks, Denmark was inspired by the Emilia-Romagna
region of northern Italy. In the 1970's, this region had an impoverished
small-crafts economy. It soon linked its many tiny crafts manufacturers
and, in a few years, unemployment dropped from 20 percent to near
zero. Once Italy's fourth-poorest region, Emilia-Romagna became
its second wealthiest.
How do these small-business networks transform faltering companies,
and countries, into success stories? By sharing resources and expertise,
seeking joint financing, bargaining collectively with suppliers,
entering export markets together and collaborating in other ways,
small-business networks can gain economies of scale and many other
These facts are not unknown in the United States. In Minnesota,
for instance, a coalition of small metal fabricators saves members
up to 50 percent of the cost of supplies. And in New York, 30 furniture
designers and manufacturers have joined forces to increase exports.
But these and other efforts are embryonic, and the reason is clear:
small-business networks do not spring up easily. One reason is that
the independent spirit of entrepreneurs makes cooperation difficult.
In Emilia-Romagna, it was the medieval guild tradition; in Denmark
it was the Viking spirit; in the United States, it was the Yankee
independence, Southern pride and cowboy self-reliance.
Another issue, antitrust, is always a potential problem when competitors
cooperate. But it is less a problem when competitors cooperate.
But it is less a problem for small companies than for large ones,
and we know of no antitrust cases involving small-company networks.
A much bigger obstacle is money. Someone must pay to get the ball
rolling, and small enterprises have little extra time or money to
spend on hoped-for, future economies of scale. But, on the other
hand, large amounts aren't needed. Denmark, with a $100 billion
economy, spent only $50 million on networking over three years.
The United States must follow Denmark's example. With encouragement
and modest outlays, the Clinton Administration can overcome the
independent spirit and money shortages that are the main obstacles
to small-business networking. The result will help small business
- and the nation.