Inter-organizational networks as a strategic response to current economic challenges. The Italian experience of the “network contract”: analysis of networks formation, goals and

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Inter-organizational networks as a strategic response to current economic challenges.

The Italian experience of the “network contract”: analysis of networks formation, goals and

governance

by

S. Aureli, M. Ciambotti, M. Del Baldo1

Selena Aureli

Department of Economics, Society, Politics (DESP)

University of Urbino “Carlo Bo”

Via Saffi 42 – 61029 URBINO (PU) – ITALY

e-mail: [email protected]

Massimo Ciambotti





Mara Del Baldo





Abstract

Considering the strategic relevance of inter-organizational aggregation, this paper aims to analyse

how small and medium-sized Italian firms have used the ‘network contract’, a legislative tool

recently introduced by the Italian government to sustain corporate competitiveness. The following

aspects are analyzed: strategic motives that underlie network formation, type of activities

undertaken, characteristics of participant firms, modes of network organization and governance

rules. These aspects all contribute to understanding network efficacy in promoting small firms’

development in the long term. The empirical analysis is mainly qualitative in nature: it focuses on

three case studies belonging to the mechanical engineering sector. Results indicate that the network

contract is a flexible instrument, used to achieve different strategies of growth and long-term

objectives, while financial incentives and tax reliefs planned by the Italian government do not

represent a key driver to collaboration.

Key words: network contract, networking strategies; firm aggregation, growth strategies,

relationships, trust, mechanical sector, Italian small and medium-sized firms

1 This work is the product of a communal effort, however, M. Ciambotti has written sections 1 and 2, M. Del Baldo has

written sections 3, 6.1, 6.2, 7.3 and 8; S. Aureli has written sections. 4, 5.1, 5.2, 6.3 and 7.1, 7.2.

mailto:[email protected]



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1. Introduction

Globalization, ever-increasing competition, and the recent financial crisis have severely distressed

several small and medium-size enterprises (SMEs). Today, more than ever, SMEs need to rethink

their strategies, organizational structures, and capabilities in order to be innovative and competitive

at the international level.

Although the historical characteristics of flexibility and an openness to networking (Birley, 1985;

Hakanson and Snehota, 1995; Marchini, 2005) have not saved SMEs from this downturn,

networking strategies still appear to be the most viable way to fill their shortage of capabilities and

financial resources, foster growth and confront actual challenges for those businesses who do not

wish to merge or be acquired by larger organizations.

The European Union is actively devoted to promoting new forms of collaboration among

companies located in different regions or countries (see Small Business Act, 2008 and 2011 under

review), since it believes that clusters and other business networks enable SMEs to join forces and

collectively face global markets. The Italian government has gone even further by introducing a

new legislative instrument called the “network contract” in 2009, whose aim is to stimulate firms to

take a coordinated approach to achieve a common objective (e.g. to innovate and strengthen their

competitiveness) without losing their independence. This instrument is directed to facilitate firms’

dialogue across regions (Cafaggi, 2009; 2010), thus overcoming the logic of industrial districts.

Among the different forms of inter-organizational cooperation, this paper aims to analyze the

distinctive characteristics of the new Italian network contract in terms of goals, membership,

organization and governance. Moreover, it aims to understand if this instrument can really

contribute to the development of Italian SMEs.

First, it will be possible to appraise the effectiveness of the network contract in promoting SMEs’

development through the examination of all those elements reported in the contract that are believed

to be necessary for long-lasting cooperation, such as clear and common goals, a clear distribution of

duties and responsibilities among partners, adequate resources for the type of strategic program

pursued and precise governance rules. Secondly, it will be possible to highlight which factors

encourage or hinder the network contract’s utilization by analyzing its concrete use in three case

studies.

At the same time, since the network contract is very flexible, and since several aspects make it

similar to informal linkages (while being a contractual agreement), special attention will be devoted

to the role of trust, which is measured in terms of pre-existing economic and personal relationships

in influencing contract details (Gulati, 1995).

The paper is organized as follows. After a review of national and international literature regarding

networking strategies, the paper focuses on the relevant characteristics of the Italian network

contract as defined by the law and discussed by national supporters and critics. Then, the network

contract’s concrete applications are investigated: first the paper starts with an overview of all

network contracts signed (currently 39), then it explores the mechanical sectors with a deeper

analysis of formal contracts and an examination of three case studies that have been selected

because of their partners’ different degrees of interaction before joining into the contract.

Finally, the results indicate that the network contract is very flexible and can be used to support the

creation of complex organizations that aim to implement long-term projects, as well as to assist a

very small group of firms in collectively promoting their product and services. Actually, its

flexibility - together with the preservation of firms’ independence - seems to represent the most

important aspect that fosters contract’s use among organizations. On the contrary, gaps in

legislation limit its diffusion.

Moreover, the results indicate that firms do not collaborate because of speculative or short-term

reasons (e.g. to benefit from legislative incentives for network contract): on the contrary they are

motivated to join the network for strategic reasons (i.e. to share the costs of internationalization,

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develop innovative solutions bringing together complementary skills). Lastly, in-depth case study

analyses indicate that network formation, planned activities, internal organization, and the

governance of networks tend to vary according to two factors: strategic goals attributed to the

network and previous relationships occurring among firms and their entrepreneurs.

Based on this analysis, it is possible to provide suggestions to the Italian legislator, entrepreneurs

and business associations.

2. The network contract: legislative profile, contents and functions

The network contract, introduced through law no. 33 on 9 April 2009 and subsequently modified on

23 July 2009 with law no. 99, factors into the complex and well-articulated context of legislation

associated with inter-organizational networks, which ranges from corporate networks on the one

hand to contractual networks on the other (Cafaggi, 2009). With respect to typical contractual

networks, which are formed through interconnected bilateral or plurilateral contracts (a network of

connected contracts), and differing from traditional forms of collaboration undertaken through

consortiums, ATIs (temporary business associations), joint ventures, franchising contracts and

EEIGs, this new juridical instrument is characterized by three points (Cuffaro, 2010):

a) It is a contract with obligatory outcomes, in virtue of the fact that the parties must agree on a

common scope (that is, they must work together on one or more activities);

b) It is plurilateral (in which two or more parties must be a business by nature);

c) It has predetermined contents whose aim is to build the parties’ innovative capacities and to

improve their competitiveness.

Concerning this last characteristic, the following elements must be present in the contract: the

strategic objectives that the parties intend to follow, the type of activities that will be carried out

collectively, the common entity that is entrusted with the execution of the contract, and the

foundation of a mutual fund (or special purpose entities) for the realization of the network’s

projects. It also spells out the duration of the contract, the rights and the obligations of the parties,

and the right to withdraw from the contract.

The network contract is defined as “trans-typical,” and is applicable to diverse objectives,

including: carrying out one or more phases of the production chain, developing activities of

research and development in co-operation, organizing a purchasing group or sales group, adopting

common production procedures, developing a network brand or common packaging, etc. Therefore,

it can be utilized to coordinate activities developed independently of each firm, to manage one or

more phases or projects, as well as to develop economic activities together that are either

instrumental or collateral depending on the core processes of each participating firm (Cafaggi,

2009; 2010). In addition, the law also admits its use for participating in public competitions and for

fundraising purposes.

The network contract helps businesses that may come from different sectors and geographic areas

undertake shared activities; it therefore diverges from the classical logic of industrial districts which

are delimited by a specific geographical and productive area (Becattini, 2000). Rather, it creates a

temporary link between firms that can be strong or weak depending on the parties’ willingness. It

also guarantees the independence of the each individual firm, which can regulate autonomously its

reciprocal relationships and, differing from other aggregative forms, can respond to obligations with

third parties on a limited basis through a mutual fund. Consequently two elements can be critical:

the network’s governance and the provision of a mutual fund.

Regarding the first point, it is important to emphasize that the execution of the network contract is

usually made by a common entity, whose composition and decision-making power are established

contractually. It can have a collegial structure or not, but it should nevertheless provide rules that

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safeguard the effective representation of all its parties. Its roles are: to promote and care for the

collective interests of the network, guaranteeing that the network follows the communal scope and

eliminating or reducing abusive behaviors; to facilitate the exchange of information among the

parties; to reconcile the individual interests of the participants (it can also mediate between them).

In any case it is useful to provide some contractual clauses that establish, for each party, the rights

and obligations of confidentiality, legality, communication, and protection of information.

Particularly critical, too, is the institution of a mutual fund or of special purpose entities earmarked

for carrying out the network’s program (according to article 2447-bis, comma 1, letter a, of the civil

code). Considering that the mutual fund is subject to the same regulations as consortium with

eternal activities (and therefore not able to be aggregated by individual creditors and represent the

only fund on which third parties, who have drawn up a contract with the network, can assert their

rights), its adequacy shows how serious the network’s intentions are regarding their parties with

whom they enter into relationships.

3. Inter-firm relationships and forms of collaboration

3.1. Businesses’ motivations to aggregate

The network contract is contextualized within the vast theme of business networks, and, more

generally, in forms of inter-firm collaboration.

For this reason, conceptually, it is a part of the vast theme of networking. This term is the synthesis

of numerous expressions that can be reduced to a “relational” phenomenon that has caught the

attention of researchers in a number of disciplines. Above all, in the second half of the last century,

it was affirmed as a mode of inter-firm collaboration that is undertaken through a number of types

and forms of relationships among companies. Thus, today, the term “network” implies “a plurality

of relations formed, through time, among a number of businesses that identify them as instruments

to actualizes shared interests and objectives” (Marchini, 2005, p. 222). We are therefore in a context

of what are commonly defined as “external” networks - networks that connect businesses who

maintain decision-making autonomy.

The diverse and possible forms of inter-firm collaboration are triggered by complex dynamics, such

as the transformation of the market (globalization, diffusion of new information and communication

technologies), the international division of labor, and the de-verticalization of the production chain,

which have compelled businesses to undertake productive and organizational processes of de-

composition and re-composition aimed at implementing new strategic and competitive trajectories

so as to guarantee their survival and development.

The concept of a network can thus be considered a sort of interpretative metaphor that helps analyze

systems of businesses or organizations; such an analysis is based on certain constitutive elements:

the boundaries of the system, the definition of the analytical nodes (or units), the identification of

the relational content, the analysis of network forms.

At the same time, such a concept extends to two principal network typologies: interpersonal

(network nodes coincide with the individuals that operate within the system) and organizational (the

units of reference are represented by firms and/or other organizations). From the reciprocal

combination of these two networks comes the totalization of socio-economic links that characterize,

in particular, local business systems.

In all, the attention to relational phenomena has its origins in anthropological and sociological

studies (Granovetter, 1985), which have observed that processes of social exchange among

individuals enhance interpersonal relationships that are strengthened and intensified over time as

reciprocal trust among them builds. In the context of businesses, these relationships translate into

exchanges of information and knowledge, which cross the organization’s boundaries and generate

processes of learning.

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Interpersonal relationships are above all common in SMEs because of their centralized and simple

organizational structure, and their directorial style centered on direct relations promoted by the

owner-entrepreneur. These relationships are used on the internal and external fronts, improving

decision-making processes and facilitating particular pathways to development such as strategies of

qualitative growth which reinforce competitiveness and sustain the business during periods of crisis.

At the same time, the same relations also serve as an important catalyst to form formal inter-

organizational relationships, i.e. contractual alliances or consortiums, which mobilize the legal

entities surrounding these relationships to exchange of material and immaterial resources.

The principle theories in the national and international literature that have interpreted relationships

of collaboration and the reasons that induce these businesses to aggregate themselves can be

distilled along three principle lines of thought, which can be further synthesized into two

approaches.

The first, defined as the transactional approach, concerns the economic matrix and is implicated in

theories of transactional costs (Williamson, 1975). The transactional approach argues that the

variety of organizational forms is the result of choices made by economic actors to minimize the

overall costs of their transactions. The network represents a hybrid organizational model that

occupies an intermediate position with respect to the market or to hierarchical relationships; it is

more flexible and adaptable to environmental changes (Rullani, 1989; Di Bernardo, 1989;

Lorenzoni, 1997; Thorelli, 1986; Powell, 1990).

The second approach contains two theoretical lines of thought, which are at the core of strategic and

organizational studies, respectively.

The first body of literature, the strategic management approach, argues that the reasons for

collaboration rest in the firm’s interest in improving its competitive position, and includes two

analytical perspectives on competitive advantage: industry-based and resource-based.

On the one hand, the industry-based perspective emphasizes the impact of external conditions (and

in particular the differences in sectorial structures) on strategic decision-making (Porter, 1980). It

hypothesizes that, to obtain superior performance, businesses try to manipulate competitive force to

their own advantage. This interpretative key helps explain collusionary accords among firms, as

well as the formation of horizontal relationships among firms operating in the same position in the

production chain, which help conquer new markets or consolidate pre-existing ones.

The resource-based perspective (Grant, 1991), on the other hand, emphasizes the role played by

internal conditions (firm-specific factors or distinctive capabilities) in providing competitive

advantage (Penrose, 1959; Wernerfelt, 1984). Collaboration here helps each unit access strategically

important resources guarded by other firms that can be combined in a variety of ways so as to

improve the performance of individual firms. For this reason, the complementary nature of

resources possessed by the participants is extremely important (Powell et al., 1986). Recently,

considered the most critical role of intangible resources, the resource-based perspective has evolved

into the knowledge-based or cognitive-based perspective, depending on whether the choice of

aggregation is motivated by the necessity to transfer, spread, or create new understandings among

the partners, developing a particular co-generative process (knowledge produced in synergy) of

learning-through-interacting that builds the competitiveness of the entire network along with that of

each partner (Lorenzoni, Lipparini, 1996; Lipparini, 1998; Lanza, 1999).

In strategic studies, Richardson’s contribution (1972) has extended the logic of (strategic) planning

to collaborative relationships, considered as a type of intentional coordination. The adoption of a

planning process in the in the formation and management of aggregation has helped evolve the very

concept of strategy from a dominant conception to an emergent one, which takes the network itself

as its unit of analysis, and posits that a new strategic objective is to acquire power through

controlling and coordinating network partners (Axelsson, 1992). Consequently, the unit of analysis

of management studies has progressively been moved the single firm to a broader subject because

of the effect of the interactive relationships with other firms. The “network concept of business

strategies”, introduced by the Uppsala school (Hakansson and Snehota, 1989; 1995), proposes an

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interpretation of inter-firm relationships that focuses on the interactions that are particular

“congenial” to informal and inter-personal relationships of SMEs. In this context, the Network

Theory Perspective (Holmlund and Kock, 1995) was proposed, according to which the choice of the

markets and the initiatives to enter into it are linked to the opportunities that they create with

network relations, more so than to merely the strategic decisions made by the entrepreneur. In light

of the relevance of the network in SMEs’ pathways of survival and development, in the last decade

different conceptual models have been developed to analyze a business’ propensity to networking, a

concept noted in the literature as “networkability” (Ritter, 1999; Österle et al., 2001; O’Donnel,

2004).

Important contributions have then come from the body of organizational studies, whose theories

have helped refocus attention on collaborative relationships, and above all have helped researchers

understand them in relation to governance issues. The nature, intensity, and number of interactions

generate a totality that must opportunely be managed through a negotiation-centered logic

(Grandori, 1989), so as to guarantee the efficacy and efficiency of agreements and to identify

solutions aimed at regulating the relationships between parties, to reduce informational

asymmetries, and to minimize opportunistic behaviors.

In the models analyzing the factors of organizational complexity of aggregations (Killing, 1990)

emerges the role of reciprocal awareness and of trust, cultivated through the adoption of a

negotiation-centered point of view, that helps to test out firms’ compatibility of interests and

complementarity of resources, to procure the necessary strategic convergences, and to create their

organizational and operative bases (Niederkofler, 1991). Trust is seen as closely connected to the

effectiveness of the exchanges and to the ways in which cooperation is governed, since when it does

not derive from previous inter-firm or interpersonal relationships, it becomes necessary to create

rules promoting participants’ actions and funding constraints (Bastia, 1989).

In conclusion, organizational studies have helped explain the behaviors of businesses by examining

their relationships with the environment and understand the problems of governing inter-

organizational relationships (selecting partners, negotiating of agreements, choosing ways in which

these agreements are formalized, defining their organization, management and coordination) and

focusing on how relationships should be governed, while strategic management studies have been

oriented more towards the reasons (the “why” rather than “how”) of relational activities and on the

objectives that can be reached through them.

Glaister and Buckley (1996) have synthesized the numerous motives that drive firms to develop

inter-organizational relations: they reinforce firms’ opening to the market; they provide the

infrastructure for the exchange of innovative knowledge; they help create comparative advantages

and specialization; they reinforce a firm’s legitimacy, reputation, and visibility. Likewise, the

development of inter-organizational relationships is considered as a quick and effective means of

learning (Ebers, 2001), a method to acquire the benefits of specialization based on the specific place

in the value chain and to reduce competition by fostering collaborative relationships with rivals. In

addition, the creation of networks is motivated by research into reducing risks and uncertainty

(Noria and Eccles, 1992) to redistribute investments in innovations or other projects.

All of these motives can be seen as pathways that aim to reach the most general objectives of the

businesses; they can be classified as defensive, proactive, and consolidational objectives. With

respect to defensive objectives, inter-firm relationships help reduce risk, increase flexibility, and

neutralize the impacts of the sector. Among the proactive objectives one can instead cite synergy,

productive efficiency, technological innovation and the obtainment of new competitive advantages.

Lastly, even the consolidation of market power is an objective carried out through agreements

among concurrent businesses that already occupy dominant positions.

In sum, such objectives are connected to those that firms can carried out with certain generic

strategies (competitive strategies and strategies of diversification), which inter-firm relationships

help achieve as quickly and as effectively as possible (Fletcher, 1994; Achrol, 1997; Ford, 1997).

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Inter-firm relationships are perceived by small businesses as instruments that can help implement

qualitative pathways to development without necessarily expanding, and can confer a maximum

speed of maneuvering in the time necessary for internal growth and helping to obtain the

advantages of vertical and horizontal integration and that of diversification (Anderson et al., 1994;

Hakanson and Snehota, 1995; Österle et al., 2001). Pencarelli (1995) considers strategic alliances as

instruments of structural and strategic flexibility, as well as of radical and innovative learning that

helps the SME to weaken the competitive position of its competitors or to reinforce its strategic

position according to its offensive or defensive position (Harrigan, 1988; Depperu, 1996). Thus,

widely held is the opinion that networks and relationships represent a necessary and important part

of the SMEs’ development. Less clear, however, is whether or not they are ultimately effective

(Ritter et al., 2002; Uus, 2006; Uus and Monkevičiené, 2005).

3.2. Typologies of inter-firm relationships

Among the numerous criteria used to classify the networks proposed in the literature, the most

recurrent are based on the following parameters:

– The horizontal or vertical direction of the links (horizontal or vertical networks);

– The presence, or lack thereof, of central actors (a-centric networks, centric networks, managed

networks);

– The accord’s level of formality (formal and informal networks);

– The presence, or lack thereof, of proprietary links (equity or non-equity);

– The strategic nature of the agreement (strategic or tactical alliances);

– Businesses’ desire to aggregate (voluntary or coerced aggregations);

– The functional areas involved (marketing, research and development, production, finance,

procurement).

A proposal that synthesizes some of the variables considered above (Fletcher, 1994) distinguishes

between linear value chain alliances among businesses that are already linked by client/supplier

relationships, as well as vertical alliances; and horizontal alliances among businesses which had

previously not been linked. Both may be limited to bilateral (or dyadic) relations, or they may serve

to create true networks, characterized by a combination of multiple sub-systems of alliances of the

same kind, or of different kinds, with more leading firms. The different classificatory combinations

create a multiplicity of business network models including agreements and strategic alliances,

constellations, consortiums, industrial districts, and groups (Lorenzoni, 1990; 1992; Ferrero, 2001).

The network contract analyzed here seems to be useful to create both horizontal and vertical

networks. With respect to the presence, or lack thereof, of central actors, the network is presented as

an a-centric network, while regarding the formalized nature of the agreement, the network is

configured as formal (the contents of the relationship are legally sanctioned through contracts). The

network contract does not provide for equity relationships (even though it does not forbid their

presence) and it aims, at least theoretically (as sanctioned by the legislator) to enhance

competitiveness and innovation, and therefore presents a strategic profile. Naturally, aggregation is

voluntary here.

Based on these characteristics, the network contract shares a number of similarities with agreements

and strategic alliances that leave ample autonomy to associated businesses.

In any case, the network contact, as with all of the various organizational models of networks

developed in the economic world, has the value of being extremely adaptable, permitting the

coordination of activities at the global level and providing a high level of differentiation and

flexibility. This helps reconcile opposing organizational conditions, so that the networks bring

together the structural advantages of small-and medium-sized organizations (such as flexibility,

speed of reaction to external stimuli, high quality, etc.) with those of large-sized organizations

(financial economies of scale, research and development, human resources, etc.), therefore

combining the advantages of the market with those of the hierarchy. In line with the axioms of the

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theory of transactional costs, they reveal themselves as a mechanism coordinating economic action

superior to both.

Nevertheless, the instrument is not without risks; opportunistic behaviors by the partners,

differences in objectives, and asymmetrical contributions by each partner can end up being

disadvantages particularly for small-sized firms who find themselves working with large-scale

partners (Niederkofler, 1991).

3.3. A model of observing networks among SMEs

A systematic reading that is useful for interpreting the aggregative behaviors of SMEs was done by

Street and Cameron (2007), who proposed a model that puts causal factors at the base of

(antecedent) collaborative relationships into relation with development and planning of strategies,

the governance of relations, and outcomes.

Four principle groups of characteristics (individual, organizational, relational, environmental)

compel aggregations. The first includes the entrepreneur and managers’ attitudes, behavioral

attributes, and personal characteristics, which are molded by individual and collective values, ethnic

identities, desire to learn, and personal relationships. The second group contains the typical

organizational factors of small enterprises (age, dimension, competitive position, propensity for

growth, propensity for risk, level of ICT diffusion, assets, and organization). The third class is

marked by the force of the relationships (diversity and density), the structure of the network,

complementarity, comparability, and the interdependence of objectives, and the type of alliances

(vertical/horizontal, formal/informal, supply/demand, client/competitor, local/outsider, etc.).

Finally, among the environmental factors that come into play are uncertainty, turbulence, market

concentration, the availability of the partners, the initiatives and the government interventions.

This model seems useful because it underscores the importance of variables that act as catalysts for

the diffusion of the network contract, some of which (considered the most significant with respect

to the development of small-scale firms) have been included in the interview themes and on which

we based the empirical part of the work. In particular, we interrogated the entrepreneur’s desire to

learn, the existence of personal relationships, the force of inter-firm relations, complementariety,

trust, turbulence and environmental uncertainty (determined specifically by crises), and government

interventions.

4. Research methodology

The study’s approach was twofold: deductive and inductive. The “synthesis method” of research

(Canziani, 1998), is typical of the Italian business economics tradition and is based on the

integration of these two analytical perspectives, which are considered to be complementary rather

than antithetical. After developing the first part of the work in which the network contract was

discussed considering legal, strategic and organizational literature, the empirical research

represents, therefore, a fundamental moment and of equal dignity with respect to the deductive

construction of the theories. This is even more fitting considering that the diffusion of the network

contract is relatively recent, is still in formation, and is currently in a phrase of intense evolution.

Therefore it is useful to make recourse to case study analysis, to examine how Italian firms are

utilizing this instrument and to reflect on its efficacy particularly for the growth of small businesses.

The research brings together the methodological orientations suggested by Ferraris Franceschi

(1998) which lends itself particularly well to the study of small businesses. The objectives stem

from an analysis of the diffusion of the network contract; they range from identifying the factors

and strategic objectives that are at the base of the network contract’s development, to interrogating

the network contract’s impacts on the organization and on the governance of the aggregations. Such

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general aims, in addition to having a marked descriptive valence, also serve as a further point of

departure from which positive and normative reflections can be developed.

The empirical research is articulated on two levels. The first level is quali-quantitative and attempts

to provide a descriptive analysis of a significant portion of network contracts in Italy. The second

level is exclusively qualitative and focuses on three cases.

More specifically, the research began by mapping the 39 network contracts currently finalized at the

national level (as of 5 April 2011). We then focused on the manufacturing sector, since a high

number of network contracts have been made in this sector (14 in total), as well as because this

represented the most common context in which SMEs have traditionally developed agreements (as

demonstrated by all the agreements surrounding industrial districts). Lastly, the focus on one sector

has provided a more homogenous base for comparison.

The selection was made after consulting the informational system of the Chamber of Commerce,

which granted us access to consult the network contracts that were registered. The technique of

inquiry for collecting the data was based therefore on the examination of individual network

contracts.

Afterwards, two network contracts (RaceBo and Diconet) from the mechanical industry were

selected, to which we added a third one in the process of formation (ImolaFa), so as to observe the

different levels of pre-existent relational intensities among the participating companies. Indeed, the

three cases were selected because they are characterized by inter-firm relationships with different

strengths: in the case of ImolaFa the links among nodes are stringent, based on an equity rapport;

this is the opposite of RaceBo, which did not register any corporate links, nor commercial

relationships in the long term. The case of Diconet represents an intermediate situation; it is

characterized by autonomous companies that have regularly collaborated for a number of years.

The strategy of research utilized for data collection is therefore founded directly on deepening one

of more concrete experiences (Yin, 1989; 1993; Tellis, 1997). The reflections stemming from the

case studies analysis is susceptible to analytic generalization; at the same time, the theoretical

intervention helps refer the empirical results of the cases selected. In more general terms, the case

study method has a double objective of bringing together in a detailed manner the principles of the

phenomenon, and to understand the dynamics of a given process (Fayolle, 2004), and represents a

“strategy of research that concentrations on the comprehension of the dynamics that characterize

specific contexts” (Eisenhardt, 1989, p. 532) that are brought together among the qualitative

approaches and the forms of research-in-action (recherche-action) which help describe, explain,

and understand the entrepreneurial situation in their own dynamics and in their own evolution.

Two principle sources of data collection have been used: documentary analysis and semi-structured

interviews, carried out with the members of the common entity of the network and/or with the

entrepreneurs that are at its strategic center. The interviews focused on five key themes; each one

lasted 2/3 hours. Informal questions were also freely asked, so as to gain deeper insights into

respondents’ attitudes, opinions and motivations. The results were synthesized in the descriptive

parts below, followed by a discussion and by final considerations.

Because the research aimed to identify the networks’ strategic objectives undertaken and to verify

(at least theoretically) the efficacy of the network contract in contributing to the development of the

firms involved, in the empirical analysis here we aim to: a) identify and classify the objectives

regarding collaboration as articulated in the contracts; b) evaluate the presence of certain qualifying

elements that both in theory and practice seem to be fundamental for the collaboration to be

successful.

Regarding the second point, the literature suggests that for networks, strategic alliances and the

various forms of existent inter-company collaboration to function, they have to necessarily establish

(Pencarelli, 1995; Ciambotti, 1995; Ricciardi, 2003, 2006):

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- clear and shared long-term goals; that is, a common strategic objective in lieu of which any

other joint venture, alliance or collaboration would be interrupted should the most

immediate objectives of one or more parts not be reached;

- the commitment of every participant to the project and to the common activities, both in

terms of the work to be accomplished or shared activities to perform, as well as resources to

share, also by providing a specific endowment of capital;

- a procedure for maintaining inter-firm relations (even through regular meetings) and for

governing the network (e.g. governance rules) including a periodical evaluation of the

performance of the common projects in light of the expected outcomes.

These factors can clarify the “mission” of the network, plan the way in which the predetermined

objectives are reached, and favor coordination between partners, the development of reciprocal

trust, and the stability of inter-organizational relations throughout time - therefore contributing to

the efficacy and efficiency of the network itself.

5. Empirical analyses

5.1. A view of the network contract in Italy

The first network contract signed in Italy took form in April 2010. After roughly a year, by 5 April

2011, there were 39 network contracts in Italy that involved 50 provinces and 226 companies, for

over half constituted corporations (174 in total). The networks are made up of a minimum of two

and a maximum of 19 nodes. On average a network includes 6 members. In one case, even a

banking institution participates (it makes its financial expertise available to the businesses in the

network), while in another case two non-banking foundations (non-profit organizations) are

involved. Network contracts have been registered throughout Italy: 17 in the North, 16 in the South,

and 6 in Central Italy.

The network contracts have, above all, a local character: in 15 cases the participants are located all

in the same province and in another 7 cases they come from the same region. The rest (17 contracts,

or 44% of the total) bring businesses from different Italian regions together in the same network,

but usually it is only a minority (often only one) of firms that come from a different region than the

others.

Through a deeper analysis of the network contracts’ content2 it has been found that agreements

above all involve manufacturing activities (56%), the provision of professional or technical services

(20%), and, lastly, the agricultural or forestry sector (8%). Among the manufacturing activities are:

7 network contracts in mechanics and 3 contracts in the manufacturing of equipment for the

production of renewable energies and energy saving in buildings, while the other 4 regard the

production of clothing, chemical products, biomedical instruments and industrial processing of food

products.

5.2. Analysis of strategic objectives, of planned activities, of resources earmarked and of rules

governing the functioning of the networks in the manufacturing sector

To understand the general objectives and the specifics pursued by Italian businesses through the

network contract, and to ascertain whether the instrument represents an ideal means to support the

development of SMEs, the contents of 14 network contracts in the manufacturing sector were

analyzed. The contract can serve as a map of the network’s strategic objectives and to check the

2 The analysis was carried out only on 25 contracts out of a total of 39 existing contracts (64% of the population) since

it was not possible to obtain all of the data from the Chamber of Commerce.

11

presence of those qualifying aspects that contribute to its stability and efficacy through time; some

of these elements constitute the minimum obligation of the contract (see section 2).

Regarding the declared strategic objectives (table 1), there are common themes surrounding the

objectives of commercial development (new national and international markets, new clients, new

additions), objectives of innovation (design of prototypes, improvement of processes), of productive

and commercial efficiency, with the consequent reduction of costs for individual firms and in

relation to the production chain (except in cases of horizontal collaboration, all of the contracts deal

with companies operating in different phases of the production chain), as well as to improve

production and their processes. The objectives can nearly always be generically classified as

proactive, which help the businesses to grow by sharing information and through knowledge

exchange.

Regarding the network’s program (table 1), it is possible to note that only in three cases (Fabbrica

Italia, Evento, Membrane) does there exist a precise distribution of activities among the partners.

More often the program consists of translating strategic objectives into more detailed objectives and

actions that the network as a whole must undertake; thus the objective of capacity building for

penetrating the international market is translated, for example, into the creation of a common brand

and in defining communal commercial policies.

From the analysis linked to these elements, one can affirm that in the manufacturing sector, the

agreements are predominantly complex and multi-functional. In fact, the collaborative accords

relate to diverse corporate functions and in only few cases were they mono-functional (the cases of

Membrane and Primarete involved almost exclusively undertaking research and development, while

in the case of RaceBo it is predominantly commercial collaboration).

Table 1: The strategic objectives and planned activities

Network name Strategic objectives Network program

Antiche cantine Create new products and processes Capitalize on the synergies between participants Improve environmental impacts Increase the penetration of the national and international markets with a certificate of quality Create a new brand

Shared development of planning, production, innovation and logistics Development of products to amplify the market Increase efficiency and productivity Amplify productive capacities Improve environmental performance Undertake service activities together Improve systems of quality management Participate in fairs and expositions Seminars on quality certification and marketing Obtain authorization for exportation Common marketing activities Creation and promotion of a network brand

Automation Net Increase the capacity to penetrate international markets

Definition of shared communication and commercial policies Creation of a common brand Joint research of potential new clients Participation in fairs, trade missions, and sharing a common agent Develop new products Improve logistical services

CHP-NET Develop and commercialize co-generative systems for supplying heat and electrical energy

Develop a fuel processing and burning centre Develop a system of cogeneration Verify the reliability of technology and its duration Evaluate costs of production Predetermine rules and disciplinary measures surrounding common activities Promote the network to develop other collaborations within the territory Participate in financing projects and at expert task forces Create a laboratory for research and development

Diconet Increase sales Integrate the specializations possessed by every node in the network and improve their qualifications Improve the network's organizational model

Co-design and analyze the feasibility of its machines Craft mechanical parts Test and assemble parts Provide “turn-key” machines and prototypes coordinating the work of all network nodes Perform auxiliary activities Form shared data banks Share information regarding products, productive capacity, costs and human resources utilized

12

Energy for Life Promote its goods/services (use of renewable energy) Raise awareness of the network's brand Transfer the innovations made by the network to the client/market

Share management of the network’s brand Obtain job orders and transfer them to network nodes Create a singular external interlocutor Raise awareness among citizens and other businesses Advertise and spread the network’s brand Participate in trade fairs and expos Determine rules and disciplinary measures

Evento Plan and build plants and systems Exchange industrial, commercial, and technological information Increase the capacity for competition and innovation

Plan plants and wind power systems Create wind power mini-plants and monitoring systems in different geographical areas with distribution of its work among nodes Assembly and test prototypes and finished installations Organization of common services: a technical office, marketing, and research and design lab

Fabbrica Italia Reinforce competitiveness in the automotive sector Create new methods of production Streamline the productive organization and its costs Increase flexibility

Subdivision of production processes and commercialization among the network’s nodes Exchange technical and commercial information Monitor processes Introduction of emergent technological innovations into production Shared utilization of a respective business structures

GSM Enhance professionalism of the nodes Offer more customized products more quickly Contain production costs Share commercial costs Eliminate duplications of costs linked to work in the productive chain Obtain new orders

Acquire raw materials and products communally Construction and manufacturing communally Shared commercial and technological activities Exchange and increase knowledge

Mecnet Optimize production among the participants Improve quality and contain costs Increase innovative capacities Offer integrated solutions Exchange know-how

Obtain a certification of quality for each participant Participate in fairs and expos Organize marketing and production seminars Invest in common instruments and assets

Membrane Collaborate in a program of investments whose objective is to build a new production plant for polisufone dialysis membrane

The network program is expressed in terms of phases and technical sub-phases to undertake communally with the attribution of specific actions to each individual node Identify specific costs for each node and its respective earnings

Olonetwork Increase the firms' penetration into national and international markets Obtain a certification of quality Offer products that require the intervention of network’s businesses specialized in diverse phases of the production chain

Determine rules and internal disciplinary measures for assigning orders Create a singular entity of certification for each node in the network Participate in fairs and expos Define a common marketing strategy Nominate a single marketing agency to organize collective and individual publicity campaigns Organize expert task forces Register a network’s brand

Polo Alta Moda Increase firms' capacities to penetrate national and international markets Create and promote a brand for the local area where network’s firms are located that valorises the high qualitative standards of the nodes Favour cooperation among member-firms

Plan and create a territorial brand and a certification stamp that guarantees the quality of the clothing produced and the sustainability of the firms that produce it Create an audit committee for conferring the stamp Undertake educational activities, financial consultations and commercial activities for the network’s firms Spread the culture of the Made In Italy textiles through workshops Define rules, conventions and disciplinary actions, as well as quality standards and standards of production Develop new projects Participate in public competitions to obtain financing for shared activities Share marketing and procurement policies Promote a culture of corporate social responsibility and raise awareness among the public towards sustainable businesses

Primarete Share research activities to develop innovative synthetic textiles Increase competitiveness

Define shared procedures for undertaking research activities Organize expert task forces Develop new technologies to promote under a shared brand

Racebo Share commercial information Share a common commercial strategy towards clients Identify new opportunities in the market Reduce fixed costs (overhead and not)

Create a sales group Create a network brand Identity the various skills possessed by the network's nodes in merit of the various phases of the productive chain they occupy

Nevertheless, in light of the complex nature of such agreements, there is not always an adequate

endowment of financial resources (table 2). The contributions that the parties must provide are

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meager (the only exception is EnergyforLife), and in two cases the contract does not even provide

indications for the constitution of a mutual fund or endowment.

If this element appears to limit the capacity of the network to implement its planned projects, it

must be considered, however, that in all of the contracts analyzed, the partners had to contribute to

the expenditures involved in the network’s day-to-day management, which, from year to year can

help develop the network’s activities. However, they could have decided not to define a particularly

high initial fund to avoid financially straining the firms, preferring a more flexible financial plan.

Table 2. Financial resources

Network name Number of nodes Mutual fund

Yes/No Total balance

Antiche cantine 2 n/a

Automation Net 3 Yes 6.000

CHP-NET 2 Yes 10.000

Diconet 15 Yes 15.000

Energy for Life 5 (of which one is a bank) Yes 100.000

Evento 5 Yes to be defined

Fabbrica Italia 2 Yes to be defined

GSM 4 Yes 10.000

Mecnet 6 Yes 3.000

Membrane 2 No, but participants will create special purpose

entities

to be defined

Olonetwork 8 Yes 8.000

Polo Alta Moda 9 (of which 2 are non-banking foundations)

Yes 11.000

Primarete 4 n/a

Racebo 11 Yes 5.000

n/a = not available

The definition of rules governing the network and procedures regarding common activities are

likewise important for the stability of the network. Even the legislature had this in mind when, in

the latest revision of the law in 2010, had made it obligatory to specify in the contract the following

elements: the common entity in charge of carrying out the contract with the specification of its

powers, the rules for making decisions on issues of common interest, and the ways of measuring

network’s achievement of strategic objectives.

An analysis of these elements (see table 3) reveals that the network always has a collegial organ

(called the Assembly of participants, the Steering committee or just the Common entity). It is

composed of representatives of all of the firms or nodes in the network, who make decisions either

based on majority rule or unanimity, which allows for all of the participants to share in the decision-

making process. At the same time, an executive organ is nearly always present, either in the form of

a Managing Director (called President or Coordinator) or the Board of Directors (also called

Management committee). The executive organ is elected by members of the collegial organ, who

delegate their power to represent the network to it.

There are two atypical cases: Membrane and Primarete, where neither organs nor methods of

decision-making were explicitly stipulated. It is interesting to note that the lack of these aspects may

not be linked to the small number of members (for example, Primarete has 4 nodes but there are

other networks that are composed of only 2 parties who have specified these elements), nor it is

attributable to its old drawing up (both contracts were signed in December 2010, after the latest

modification of the law).

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Table 3. Network organs and their functions

Network name Network organs Methods of decision-making and evaluation

Antiche cantine Steering committee (1 representative for every node)

President of the Steering committee

Monthly meeting of the Steering committee Decisions by the Steering Committee based on majority rule Annual report (balance sheet & income statement)

Automation Net Steering committee (1 representative for every node)

Coordinator of the Steering committee

Monthly meeting of the Steering committee Decisions of the Steering committee based on unanimous vote Compilation of a program and an annual report

CHP-NET Assembly of participants (1 representative for every node)

President of the Assembly of participants

Decisions of the Assembly based on majority rule Technical meetings based on the state of the work Annual report prepared by the President

Diconet Assembly of participants (1 representative for every node)

Management committee lead by a President

n/a

Energy for Life Assembly of participants (1 representative for every node)

President of the Assembly of participants

Annual report

Evento Assembly of participants (1 representative for every node)

Managing Director Annual summary report Annual forecasting report

Fabbrica Italia Steering committee (2 representatives for every node)


Periodic evaluation of the target costs

GSM Common entity (1 representative for every node)

Coordinator of the Common entity

List of expenditures

Mecnet Common entity (1 representative for every node)

President of the Common entity

Annual summary (balance sheet & income statement) Projected balance sheet & income statement

Membrane Common entity (1 representative for every node)

n/a n/a

Olonetwork Steering committee (1 representative for every node)


Meetings of the Steering committee three times a year Decisions by the Steering committee based on majority rule Annual report and projected balance sheet & income statement

Polo Alta Moda Assembly of participants (1 representative for every node)

Management committee composed of 5 elected members and headed by a President nominated by the leading firm (not elected)

Monthly meeting of the Management committee Decisions of the Management committee based on majority rule Annual report Projected balance sheet & income statement

Primarete n/a n/a n/a

Racebo Assembly of participants (1 representative for every node)

Board of Directors composed of 2 elected members and headed by a President

Annual economic plan

Regarding the evaluation of the network’s activities and results produced, the most common

instrument is the annual report, a document in which all of the results of the preceding year are

summarized. It does not necessarily display the network’s financial accounts; at times it is a simple

list of expenses (as in the case of GSM), while in other cases it can assume the form of a balance

sheet and income statement. Interestingly, only in three cases networks translate their strategic

objectives into a formal report displaying projected economic and financial results.

Sometimes it was not possible to find any indication of this, as such information was completely

absent. Given this missing component, however, it is not possible to affirm that these collaborations

were without rules surrounding their functioning: these can be defined at an informal level or they

could have been agreed upon and undersigned after the certification of incorporation (therefore they

do not enter into the network contract but in subsequent pacts or accords that were not subject to the

obligation of making them public).

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6. Case study analysis

Since the information contained in network contracts do not always allow the researcher to

understand the characteristics of participant firms and accurately analyze the strategic motives that

underlie network formation, we conducted a more in-depth analysis with a select number of these

business cases.

In addition, the case study analysis and meetings with the subjects (e.g. Presidents) leading the

network were also necessary to identify the formal and informal rules that govern the network and

to understand whether or not the lack of a shared set of formal rules reflected preexistent inter-

company or interpersonal relationships.

As stated in the methodology section, two of the cases analyzed were contracts that have already

gone into force and which were included in the manufacturing sector data in the previous session’s

mapping of contracts, while the third regards a network that is in the process of formation.

6.1. The case of ‘RaceBo’

Description of the network

RaceBo is a network of 10 companies, almost all located in Bologna (only one has its headquarters

in Modena, another city of the same region), which was formed in April 2010. The majority of the

firms work in the mechanical sector, but some nodes come from the construction sector (large-scale

carpentry) and metallurgy. At the moment the headquarters of the network is at VRM Spa, whose

main shareholder is also its promoter and the president of the network. In all, the network generates

a net profit of € 90 million and involves 600 employees.

There are no corporate links among the nodes, no cross participation; nor is there the presence of

common subjects in the Board of Directors of individual firms. Only three businesses out of 10

have previously worked together in a client-supplier relationship (for around 3-4 years), while

others have never had a working relationship with one another. Each entrepreneur knew the other

companies just because they all were located in the same area. Moreover, they knew each other

personally, even if it was often at a superficial level, since they participated in local trade meetings

together. None of the firms had previous experiences with aggregation, such as participating in a

consortium. This network, therefore, did not formalize preexisting relationships but created a

completely new form of aggregation.

At the moment the network has already initiated contact with three other firms, located outside of

the region, for possible future nodes and are evaluating contacts with some subjects located abroad.

Strategic objectives and network program

According to the President interviewed, the network was formed primarily to overcome the

economic-financial crisis initiated in 2008, through a strategy of aggregation, without, however

losing the autonomy of each individual business. The aggregation was conceptualized as a new

organizational model to help the participating firms to be more commercially aggressive, acting as a

single interlocutor to the client and offering a more controlled price. However, it also was a strategy

devoted to consolidate supply relationships and reduce competition inside the supply chain.

For this motive, as indicated in the certificate of incorporation, the members of the network

proposed that they would share commercial information on all of the clients of each individual

company, define a common sales strategy for the network’s clientele, identify new opportunities in

the market (such as entering into the automotive business), and reduce fixed general costs linked to

the development of communal processes. Consequently, the firms have started a working group

oriented for sales purposes, towards which each participant contributes with his specific and

complementary competency, availing themselves of the network’s brand to use individually or

collectively for the development of new commercial relations.

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The promoter of the network was against collaboration among firms operating in the same sector or,

worse, in the same phase of the production chain, because in his opinion it has the mere scope of

creating a dominant position on the market; nor did he wish to limit himself by sharing certain

corporate costs. His goal was to put complementary companies together that could form an

integrated productive cycle and a complete production chain, which would produce certain

advantages that, in his opinion, only a network contract (and no other legal forms of collaboration)

was able to ensure: the conservation of each company’s autonomy, with the contextual creation of a

legal entity that could provide unity to the group of firms and amalgamate diversity, in addition to

obtaining a network rating that could provide better financing conditions. No particular valence was

given to fiscal advantages prefigured by Italian law in merit of the network contract.

The network has a common brand and has participated in a number of trade fairs. However, with

respect to the predetermined objective of acquiring new sales by presenting itself as a network, the

interviewee affirmed to have not been able to objectively evaluate if the profits from the last few

years increased because of network involvement (one should not exclude the fact that firms could

have obtained the same sales working independently). In any case, the members of the network

share the view that they have achieved very positive qualitative results after the contract went into

effect, such as greater visibility, greater commercial aggressiveness, and greater internal cohesion.

The network’s organization and resources

When the network was founded a mutual fund was planned in which each party contributed € 500,

for a total of € 5,000. The fund has already been completely used, such that network activities that

incurred management costs (especially participation in fairs) have been financed by the parties from

year to year. At the moment the costs of the network are divided equally between the firms, but they

are considering modifying the criteria of allocation.

There did not seem to be any specific human resources dedicated to the network, nor is there an

autonomous headquarters: the individual firms host meetings in their various offices. The point of

reference is however VRM Spa, whose main shareholder coordinates the activities of the network

as President without receiving a compensation. The activities planned are non-binding: every

company can decide whether or not to participate in each initiative, and, consequently, in reap

possible benefits and incur costs. No company has given the network their own technical

instrumentation or other assets.

Governance

The network is guided by the Assembly of participants that must deliberate on each initiative (for

example, participating in a project) during periodic group meetings, and delegates the operation of

the project to the Board of Directors. The Board of Directors is the network’s executive organ; it is

composed of a President and two members, who draw up the list of communal initiatives on which

the assembly deliberates and the associated economic plan, coordinate the network’s activities,

handle the mutual fund, and manage the offers that are directed to the network in the name of the

parties. The Board advises the Assembly of the activities it undertakes, and at the end of an activity

(for example, after a trade fair) it distributes a final report.

The certificate of incorporation specifies that each company has to be informed of the initiatives

that the group or part of the components of the network intend to take on, with the understanding

that it is possible for each individual company to undertake their own initiatives. The partners

participate in the decision-making by voting in the Assembly (voting rights are independent from

financial contributions). The Assembly can be asked for a meeting every time at least one partner

makes a request.

The informant said he did not fear opportunistic behaviors from his partners because there exists a

healthy level of reciprocal trust. He affirmed that clauses dealing with penalties or restrictions were

not inserted into the contract because they would be too burdensome (it would have been necessary

to involve specialized lawyers), and he felt it would be an incorrect way to begin a project if, from

17

the very beginning, mistrust was generated. To underline possible opportunistic behaviors would

have blocked the creation of enduring relationships of reciprocal trust. There does, however, exist

an unwritten, informal agreement to give the client the freedom to choose which firm to work with

in case of similar services offered. This is to avoid disputes with the clientele (and risk of losing

them), and to guarantee the sale to at least one of the network’s firms.

Partially diverging from what the informant declared, an examination of the certificate of

incorporation instead found the presence of certain rules and penalties. Most importantly, an

agreement of confidentiality is expected. Second, there is a rule that forbids the use of the network’s

brand without first informing the memberships and, in the case of its unauthorized use, the firm can

be held liable for any damage incurred. There is also a non-compete clause, based on which none of

the participants can undersign other network contracts that conflict with this one, and a clause that

limits a firm’s ability to participate in other networks or aggregative forms without the consensus of

the entire Assembly. Another clause was added to this that incentivizes collaboration (every party

has the duty to promote the other parties in the network by giving them priority in subcontracting

work, all economic conditions being equal and for the same product offered by other market

subjects). In addition, there is also a clause that deters withdrawal from the network (a firm that

withdraws cannot get back any of its contribution to the mutual fund).

6.2. The case of ‘Rete Diconet’


Diconet is a network composed of 15 SMEs that operate in the mechanical sector. It was founded in

October 2010 with its headquarters in Bologna. It involves 256 employees and generates a net profit

of € 30 million. The participating firms all come from the same district and are almost all located in

the province of Bologna (except for one whose headquarters is in a different region). However,

there are another three companies, one of which is headquartered in Romania, that regularly

collaborate with the network, although at the moment they are not officially a part of it.

In this case, the contract represents the formalization of a collaboration that began many years ago,

in that the network’s firms had already adopted an internal agreement that standardized their

relationships. Some had begun working together 16 years ago, others more recently. The first

formalized relationship occurred in 1998, when three firms decided to construct a new company,

Dico Service srl, today a member of the network. In addition, all of the entrepreneurs involved have

known each other personally before the contract was signed. This understanding, according to the

informant, is at the base of the trust that governs the network. It is a constitutive element, without

which the network would have had a short life.

The nodes are not all independent. One firm is controlled by another conglomerate and 4 out of the

15 registered in the network are managed by the same person which is also the President of the

Board of Directors.


The network was formed with the goal of acquiring new orders and increasing sales in such a way

that, because of the complexity and sizes of the individual firms, would have been beyond the scope

of any singular node. It also is intended to integrate the specialized competencies of the participants,

to improve the organizational model that is at the base of the collaboration between firms in terms

of optimization of labor and information processes, to reduce costs and improve the quality of their

products.

The formal appearance of the network, assumed when the contract was signed, particularly aids its

commercial objective, inasmuch as the participants can present themselves as a unit and do

publicity as a single entity. In addition, this type of contract was preferred to other legislative

instruments for prospective tax benefits promised by the Italian government, though later it was not

deemed to be practical. The informant lamented that the networks do not yet receive specific

18

funding (to obtain regional funds an ATI must be formed), nor is it possible to benefit from an

extension on tax payments linked to the interest earned on the network’s mutual fund (legislative

proposals are still too vague).

This network has already completed a number of its projects, though some of which were already in

process at the time the contract was signed. For example, the participating businesses had already

been utilizing an integrated information system that linked all of the network’s nodes, and were

already governed by a common system of rules relatives to their qualitative standards. The network

is still in the process of obtaining a certification of quality (so that the network and each individual

party can advertise to third parties that they are certified). Lastly, the parties are assessing whether

or not to participate in an international network in which they can undertake research and

fundraising projects.

The network’s organization and resources

The network disburses a mutual fund of € 15.000, to which the partners equally contribute.

However, it has not yet been used to fund shared initiatives because the network lacks a VAT

number and there is uncertainty as to whether the fund can be utilized without one. The network

does benefit from structures and personnel that come from the individual companies, whose costs

are covered in equal measure, while the costs relative to the activities surrounding the contract itself

(for example, rent or external services) are divided based on the volume of income for each party

and on the amount utilized.

Governance

The 15 firms that have signed onto the contract all participate in the network’s Assembly, which

elects four members to the Management committee. The Committee is the organ entrusted with

carrying out the network’s programs. It is led by the President, who has the power to represent the

committee before the Public Administration and the banks, to access credit, and to undersign fiscal,

administrative and research-and-development agreements. When managing orders that require the

involvement of multiple nodes, however, the firm Dico Service functions as the network head and

point of contact.

The network’s activities are periodically evaluated; by rule there is a bi-monthly evaluation, as well

as when the President calls for the convocation of the committee. However, since all of the nodes

began using the same management and analytical accounting systems, monitoring is practically

constant. Consequently, this network does not feel the need to create formal systems of control

aimed at avoiding opportunistic behavior.

In any case, there are a number of clauses in the contract and associated regulations aimed at

discouraging opportunistic behavior, particularly regarding the use of the network logo,

participation in communal activities, withdrawal, and the exclusion of individual participants. There

is also a provision penalizing (at 30% of the sum deposited in the mutual fund) any company that

withdraws from the network because of a disagreement with decisions made by the Management

committee.

6.3. The case of ‘ImolaFa’


ImolaFa is a network composed of 8 firms; 7 of which are located in Imola and the other in another

city of the same region. All operate in the industrial automotive field. Together the network

employs 440 people and nets around € 60 million in sales. At the moment the network contract has

not been signed, but its contents have already been defined. The companies are evaluating the

possible entrance of 2 other nodes, whose resources and competencies are currently absent from the

network.

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All of the companies are members of Unindustria (the local industry association) and all of the

owners have known each other for many years. Some have also enjoyed previous collaborative

experiences together: two came from the same research and design cooperative, while another three

participated in a consortium together. The companies also previously cultivated commercial

relationships with each other and today, of the 8 firms involved, 7 are in equity relationships (direct,

indirect, and cross participation).


The network contract aims to develop a critical dimension necessary to compete at the international

level, especially in terms of human resources and competency, which can be leveraged to dialogue

with the large players in the market (i.e. Bosch and Siemens) and to confront competitors.

In this case, the network contract was not drawn up to help overcome the economic crisis; rather,

the idea of aggregating came before the current crisis. According to the informant, the network

contract should not be utilized for short-term motives, such as overcoming unfavorable situations or

obtaining financial breaks (at the moment they are not interested in obtaining a rating for the

network), but rather should carry out long-term objectives such as increasing the internal

competencies of the firms involved. In addition, the network should be utilized as an instrument for

launching new initiatives and creating innovative products that other companies do not make and

not to aggregate the productive chain in logic.

Specifically, the objectives of the network contract regard: the creation of a technological

partnership with businesses, universities and advanced research centers; investment in R&D to

develop new solutions, innovations, and patents; entrance into international markets (especially the

Russian market) and the management of shared commercial relationships (the management of

external orders and the sales of patents or other intangible assets developed by members of the

network and by those ceded to ImolaFa). In particular, the commercial scope has pushed the

companies to opt for the use of the network contract over other instruments because their foreign

buyers seemed to prefer interfacing with a single interlocutor, knowing, however, that they can deal

with a single firm should a problem emerge, while consortiums can easily fail without the

participating agencies responding.

The network already enjoys a great deal of visibility (thanks to its website and its participation in a

number of trade fairs) and has added 33 new contracts. According to the informant, the visibility

has generated an increase in sales by 10-15% among its participants. Indeed, the network has

already grown its internal competency and its technological level. It is also in the process of joining

two other networks: an export consortium for the Russian market and a technological network with

the Universities of Bologna, Ferrara and Trieste.

The organization and resources of the network

The objective is to create an endowment of € 200 million to which each business participates in

accordance to its size (in terms of workforce). To begin with, € 5.000 are requested from the smaller

firms and € 10.000 from the larger ones. At the moment there are no human resources exclusively

dedicated for the network, but every business provides a certain amount of time of its personnel to

work on network activities (work that is accounted for by the network and reimbursed to the

participants). The network activities are undertaken by the nodes in a coordinated fashion, avoiding

the duplication of resources inside the various firms. The subsequent management costs are covered

by the participants according to their size.

Governance

According to the rough draft of the contract, the network will operate through a joint-stock

consortium (a legal entity and not just a cooperative arrangement, yet to be formed) that will have

the power to execute the network’s programs. It will perform any commercial, industrial, real estate,

security, and financial operations felt to be important by the network’s members to reach its

20

objectives. Every node in the network can express its own vote in the assembly of the joint-stock

consortium in proportion to the capital amount conferred and participate in the nomination to the

Board of Directors of the consortium. For particular decisions a written agreement of every

participant is required.

Today, the network is guided by a Strategic Committee formed by 4 people, and one of the nodes of

the network (AEPI) acts as head of sales towards external clients: it serves as both the contractor as

well as the coordinator of the network’s work and the manager of its bureaucracy.

For its mechanism of evaluation, a meeting with the committee is called every three weeks.

Furthermore, there are more frequent operational meetings, even daily in some cases, such that the

monitoring of network’s activities are continuous and shared.

The informant is convinced that none of the participating firms (also in virtue of their corporate

links) are interested in behaving opportunistically. In any case, rules have been added (defined in

specific para-social pacts) that establish when an external commission must be signed by the

network rather than by the single firm and how the associated work on the order is subdivided

among the participants. To deter a firm from leaving the network, the sum deposited to the

endowment will not be returned. And if an individual firm participates in a trade fair using the

brand of ImolaFa, the sales eventually obtained must be managed by the network and not by the

individual company.

7. General Findings and Discussion

7.1. Initial reflections on the use of the network contract

First, from the analysis one finds that the number of network contracts registered in Italy is still

quite small, perhaps because the greater public is not yet aware of this or perhaps because it is not

well defined under the tax profile.

These early experiences, however, do indicate that the network contract is used throughout the

entire Italian territory from North to South, by firms in every sector (including agricultural), for

coordinating the work of both large networks (with many nodes) as well as of those with only two

subjects.

A second distinctive element that emerged from the research is the territorial aspect of the network

contract. While theoretically the legislator may have intended this new legal instrument to reinforce

the system of SMEs by offering them the possibility to operate collectively outside of their

traditional districts, the data shows that the networks primarily involve firms located in the same

geographic area.

This may be explained by a lack of trust among the economic operators (a trust that with the crisis

is further diminished), who might prefer turning to local entrepreneurs with whom they already

cultivated commercial relationships or, more simply, whom they have personally met before.

Otherwise, it can be hypothesized that these entrepreneurs continue to think through the myopic

lens of the district, believing that the source of efficiency is rooted in the synergies that are created

at the territorial level (the so-called advantage of proximity), while competitive advantages can

come from other sources, such as in clusters (Porter,1998).

This second explanation should, however, be better investigated in the future, i.e. by analyzing

conversations with the entrepreneurs. In addition, such an argument should not be generalized since

there are some contracts with partial interregional relevance (44% of the 39 registered) and two

networks that involve, respectively, two foundations and a banking institute. This demonstrates that

some economic operators are aware of the advantages that derive from long-distance links and from

linkages created with different sectors and institutions.

Focusing attention on the manufacturing sector, a close reading of the contracts allows us to

highlight other important information.

21

- First, there is significant variety within the contents of the contract in terms of both strategic

objectives and activities programmed. Sometimes the instrument is used to undertake shared

activities regarding productive operations, therefore they are contracts that tend to have the

objective of providing certain cost advantages. Other times the contract regards activities of

marketing and research and design useful for carrying out objectives of quantitative and qualitative

growth. As it helps to achieve a plurality of objectives, it reveals that the legal instrument is very

flexible and as such could be put to good use by SMEs.

- Second, the accords undersigned typically have a multi-functional character, that is, they

anticipate complex forms of collaboration with more corporate functions called to participate in

diverse actions communally (Ciambotti, 1995). According to this functional classification

(Pencarelli, 1995), an analysis of the objectives and activities planned reveals that the most common

agreements are those that are aimed at activities of research and development, marketing and

production.

The first type of agreements regard the innovation of products and processes, which are undertaken

with direct investments by the participants or through access to complex projects begun by others,

for which a significant critical mass of technological and knowledge-based resources is required. In

certain cases the research is intended to create protocols and standards of quality that can be used to

obtain its own network certification. Agreements of the second type aim to create a common brand,

which is also linked to cross-selling initiatives. Finally, agreements regarding production aim to

create projects or work orders, in addition to rationalizing the network’s productive organization

when the firms come from the same production chain. Uncommon - at least not declared in

contracts - are financial accords (for example, those aimed at raising public and private financing to

be put towards carrying out network programming) and those regarding the activities of

procurement, whose lack may be explained by the presence in the Italian legal system of certain

contractual formulae specific for the provision of goods and services that can be acquired

collectively.

- Third, the analysis of the objectives declared in the contracts reveal that this instrument holds a

significant strategic value. Despite differences in the variety and the relevance of the strategies

pursued, in all of the cases analyzed, one finds that participants are searching for business growth

(in terms of new markets and greater penetration of preexisting clients) and are pursuing avenues of

qualitative development.

The fact that many of the accords undersigned regard research and development confirms that

network contracts are used to purse long-term success. This is an important sign of firms’ interest in

cultivating relationships and producing innovative knowledge. Moreover, it helps to overcome a

traditional area of weakness among Italian SMEs, who usually lack attention towards innovation.

Even the objectives and the activities planned by the SMEs observed in the three cases here confirm

this.

Public support for inter-firm collaborations, in addition to the prevision of specific tax breaks for

network contracts, could have pushed firms to aggregate themselves for more opportunistic and

short-term motives. However, financial agreements are a minority and never represent the sole

activity planned by the network. The case study analysis suggests that possible financial and fiscal

advantages represent more so a factor that can influence the type of contract preferred (i.e., the

network contract over the consortium) but not the choice of to collaborate. Although in one of the

cases analyzed (RaceBo) the owner declared openly that he perceived the network contract as an

instrument to help overcome the crisis, in none of the contracts were there explicit indications that

they were intended as a means to overcome unfavorable economic conjunctures. In addition, the

other informants argued that the constitution of the network should only be used to confront long-

term objectives such as growing skills and developing technology.

This demonstrates that the network contract functions as a means of satisfying the goal of achieving

competitive capacity building in national and international markets as well as innovation (as it has

been suggested by the legislator, moreover).

22

- Lastly, one notes the tendency to favor the exchange of information and the integration of

different skills. This is especially evident in the three case studies. Since the parties research how

the different nodes complement each other in resources or skills, it seems the entrepreneurs are

aware that complementarity and exchange of know-how are fundamental elements for producing

competitive advantages. The entrepreneurs interviewed search for exchange and the integration of

skills among companies operating in different phases of the production cycle as well as with

companies of different sectors (above all in the cases of Diconet and ImolaFa), more so than

perpetuating the fragmentation of the productive phases and of the relative knowledge that often

happens in the districts.

Nevertheless, one finds a certain difficulty in overcoming the vision of the production chain: the

units of the network tend to replicate an integrated productive cycle, and out of the three cases

examined here, only ImolaFa has said that it intends to collaborate with universities, research

organizations and commercial operators in the future. The same conclusion emerges from the

general assessment of the contracts currently in effect: these networks rarely involve agencies,

organizations, or subjects outside the sector: only in two cases collaborations with foundations and

a banking institution were found.

Therefore, it does not seem, for the moment at least, that the network contract serves as a driver for

passing from the traditional district-based logic to that of the international cluster.

7.2. Efficacy of the network contract regarding the development of the SME

Regarding the network contract’s efficacy in supporting development objectives, we have found

that some of the elements that could help guarantee the stability and smooth functioning of inter-

firm relationships over time were often not present or, if they are present, were ill-defined. The

network program does not clearly delineate the tasks of individual partners except in three contracts

out of 14 examined, network’s financial resources are often small, especially considering the variety

and complex nature of the communal projects, while the rules of operation are often approximate.

If, on the one hand, this absence can suggest that the network contract is vulnerable to

incomprehension and conflict among partners who have not clarified their roles, powers, and

obligations from the beginning, it has also the merit of attributing flexibility to the contract itself. In

fact, a less detailed contract avoids the complex and costly notarization of documents in the case of

a plan’s revision, providing freedom to the entrepreneur to behave as he sees best.

The absence of precise formal rules can be expressly willed because it favors continued reciprocal

adaption among partners and stimulates continuity of the collaboration even in the face of new

situations. In addition, formal rules could be substituted by trust, which represents an optimal way

of binding the firms together and an effective instrument of mobilization and coordination of linked

resources. The presence of an informal network from which formal ones can then be developed

justifies the generic nature of the rules and the terse indications concerning the operational

mechanisms.

It should be noted the network contract does not have a legal subjectivity: this element limits the

ways in which the network can operate as an individual subject, in which the nodes that compose it

also participate daily in communal activities, directly monitor the advancement of their projects

even though they do not feel the necessity to define a system of rules for avoiding opportunistic

behaviors on the part of the network managers or the delegate to the activities.

Even the limited amount of mutual funds may not be a limiting factor since the firms nevertheless

assume the obligation of covering current expenses. A small mutual fund could indicate that the

collaboration is still not well developed, whose financial requirements are difficult to estimate, both

in terms of expenses and in the time it would take to cover them. In this case, even, it is desirable to

avoid excessive capitalization that does not allow for access to the liquidity of the participating

23

firms. In addition, a smaller initial fund certainly is in line with the Italian small business owner’s

propensity to limit risk capital and prefer bank debt.

Our case study analysis seems to be particularly useful on this second aspect of the research: it

therefore allows us to go beyond theories of the efficacy of the contract to examine the actual

results produced by the networks. In particular, thanks to the interviews conducted, it is possible to

favorably evaluate on the results from the network contracts, even though the contracts have been at

maximum in effect for only a few year, and at minimum only a few months. In fact, in all of the

cases observed, the entrepreneurs expressed their satisfaction with what the network produced:

greater visibility, the increase in sales, the sharing and incremental success of awareness developed

through the logic of learning-by-interacting, in the implementation of rules and protocols

surrounding the work and the exchange of organizational information that produced more effective

and efficient coordination between, as well as within, agencies.

Finally, if one considers that all of the three cases selected refer to networks between small-and

medium-sized firms (on average Diconet registers 17 employees per node while ImolaFa and

RaceBo have 55 and 60 employees per node respectively), it is possible to affirm that the legal

instrument can be easily utilized by small businesses. Theoretically, contractual flexibility,

autonomy in the hands of the participants, the provision and use of a mutual fund, and the

possibility to join even only two firms together, render the network contract attractive for even the

smallest firms resistant to collaboration.

This does not signify, however, that the network contract must be utilized only by firms privy of

previous collaborative experiences: the cases analyzed here indicate that it can likewise be

employed by companies who embrace collaboration and have equity-based links.

7.3. The role of trust

In the cases examined, the pre-existence of collaborative and fiduciary relationships are an

important and discriminating element particularly when confronting the complex nature of the

network’s strategic goals and, in part, also of the organizational model adopted.

The interviews suggest that when previous collaborative experiences are not present, and there are

only weak links between the network’s nodes (i.e., owners merely know of each other), as in the

case of RaceBo, the network contract is built around more contained strategic objectives and the

distribution of work is not highly formalized. There exists only a President of the network who is

given the job of carrying out decisions made in a communal fashion. The costs are divided in a very

elementary way (per head), while the internal activities’ costs (such as hourly work in communal

activities) are not billed, nor are they repaid among the groups. Finally, the mutual fund is quite

meager.

Diconet is a bit different. It represents an intermediate situation characterized by pre-existent inter-

firm relationships over a long period of time. This network launched a more complex strategic

project, it cultivates a higher financial endowment, and, above all, while rules governing the

operation of the network are not formally spelled out in the network contract, they are nevertheless

present. Additionally, this network created an Assembly of participants and another executive

organism whose activities are evaluated in a consistent and continuous fashion.

The situation of ImolaFa is, instead, quite diverse: instead of being made up of weak links among

the owners, the network is composed of corporate bonds and has a history of many collaborative

experiences with third parties outside of the network. In this case the objectives of the network are

very challenging; they are far-sighted and look to the long-term. Its organizational model is also

more complex, such that it called for the creation of a joint-stock consortium to execute the

network’s programs. The costs of these network activities are subdivided based on the size of each

participating company, and even the internal work is accounted for (through billing) and repaid.

Though it does not provide for personnel or technical resources exclusively dedicated to the

network (none of the three cases do), the mutual fund is substantial.

24

Therefore, the organization and the resources of the network are conditioned principally by the

aggressiveness of the strategic project, in virtue of the fact that the success of the initiative depends

on the necessary coherence between strategy and structure. On the other hand, it one can also

hypothesize that the lack of previous relationships and an adequate level of reciprocal trust compels

the entrepreneurs involved to limit their exposure to risk and therefore to only fund a small

endowment.

Trust among networks represents an immensely important element: even if it is only considered (as

in the case of RaceBo), it must be present in order for the entities to collaborate.

Normally there is a correlation between the intensity of trust and the stringency of the network’s

operational rules: trust represents a mechanism of coordination and control that, when absent, is

substituted by formal rules and corporate constraints. Nevertheless, in the cases analyzed this is not

completely confirmed: the presence of formal rules do not appear to be very different and even in

the case of businesses linked by equity ties and with previous work-related experiences and strong

fiduciary relationships (ImolaFA), there are formalized rules. Similarly, the frequency and the

manner of evaluating the conduct of the executive entity by the Assembly of the network

participants, does not appear to be correlated to different levels of trust: evaluations are more

frequent (even monthly in the case of ImolaFa) the more complex the shared work is.

8. Conclusions

The results discussed in the previous section allows us to confirm that the network contract can be

utilized as a driver of qualitative development, which helps develop intangible resources (awareness

and learning) and contributes to managerial growth and aspects of management of the firms

involved in the aggregation. Also confirmed is its role as a flexible and dynamic instrument, open to

new and diverse developments on the organizational and strategic levels even though it remains

within a legal framework. In addition, the use of the network contract as an instrument to undertake

strategic objectives - both defensive/reactive and offensive/proactive - and to confront complex and

unstable environments and to reinforce competitiveness is confirmed.

At the same time, it is also possible to express a positive judgment on the efficacy of the proposed

instrument. The obligations imposed by the legislature - namely, delineating the network’s

objectives and programs, creating an organ that governs the network, and providing for a mutual

fund - definitely represents the most important elements of the network contract, without which

such collaboration would not easily function. Indeed, the entrepreneurs who used this instrument

are satisfied with the results.

The researcher need not interpret a network to be instable when the contract is less clear and the

functions of the network are less formalized. On the contrary, one could confirm the interpretation

of the network contract as an instrument of aggregation that unites pieces of informal and formal

networks, where the relations between entrepreneurs represent the base for the development of the

contract and continue to operate during the course of the network’s existence, facilitating

relationships among the participants.

Limits to the concrete efficacy of the contract may be noted, however; these are the absence of

common norms regarding the governance and function, and in the network’s lack of true legislative

subjectivity. To better qualify the network contract it is suggested that the economic operators

oblige the parties to define, in the clearest way possible, within the network contract, the rights and

needs of each participant, in addition to the procedures of distributing decision-making power and

evaluation - without however, rendering the organization too bureaucratic. The legislator should

also evaluate whether or not to allow the network to draw up direct contracts and billing statements

with its clients, considering that the results derived from the collaboration are not easily attributed

to one or more participating subjects and therefore are not able to be evaluated by the end client. So

that the network does not assume a mere commercial character (of being the first contact with a

25

client), but that it is organized in fact as a joint corporation, it is thus necessary that the legislator

requires more stringent clauses regarding the existence of a dedicated endowment, of governance

between parties, and of a single method of accounting.

26

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