Network Impact on Business Strategy for Embedded and Peripheral Firms

This paper compares two textile companies, one a central protagonist of the networks of the industry and sited within the main heartland of the cluster (Turnbull & Stockdale Ltd.), the other peripheral both geographically and in network engagement (Ferguson Bros. Ltd.). It considers the difference in their strategy and actions resulting from their central and peripheral positions within the industry structure.

The companies examined are British printed textile firms, working in the 1920s and 1930s. The printed textile sector is the focus of study as it was subject to major economic, market, technical and stylistic changes during this period and had a multiplicity of different network organisations active in the industry. Turnbull & Stockdale Ltd. were based in Lancashire near Bury and were integrated into the central Manchester-based cluster of industry organisations, both design-focused and for internal industry policy. Ferguson Bros. Ltd. was a vertically integrated textile firm based in Carlisle. They were a member of the Federation of Calico Printers from 1925 but do not appear to have been actively involved in its committees or in other industry organisations. Did Ferguson Bros. suffer from its peripheral position within industry networks and cluster? Or alternatively, did Turnbull & Stockdale Ltd.’s position embedded within industry networks inhibit their actions or restrict their strategic approach? The paper considers whether the competitive advantage of knowledge distribution (Grant, 2003) from involvement in networks and clusters (Hakansan, 2005; Malmberg & Power, 2005; Eccles & Nohria, 1992) was significant. It will assess the role of different networks – did any provide access to opportunities, flexibility of working and response (Veyrassat, 1997; Capecchi, 1997), skill development and knowledge creation to build industry epistemic clusters? Or did the defensive approach of collective industry associations had an inhibitory effect on the ability to concentrate on building core competences and developing an independent, differentiated range of innovative products from this competence (Prahalad & Hamel, 1990; Johnson & Scholes, 2002)?

Casson (2003, pp.25-26) warns against ‘bad networking’, in which entrepreneurs combine to protect weak industries against external competition or inward-looking anti-entrepreneurial regional cliques are formed, which inhibit local development. Hamilton & Feenstra (1998, p.107) argue that ‘In Coase’s vision (1937, pp.403-405), the crucial aspect of the firm is the authoritative ability of ‘some authority’ to direct resources efficiently in the production and marketing of goods.’ So did taking an active role in the networks disperse energies from concentration on the firm or were the collective support and knowledge diffusion benefits of the networks more significant? As network institutions develop, they can have a negative effect in the rigidity and inertia of practices and attitude, described as ‘institutional sclerosis’ by Olsen (1982). This relates to the concept of the life-cycle of a cluster (Swann, 1998), in which there is a transition from the Take-Off stage in which membership of a cluster gives competitive advantage and the Saturation stage in which the benefits are outweighed by the costs of clustering. At the Saturation stage for the British cotton industry, there was horizontal specialisation and increasing scale establishment of industrial cartel firms (the Calico Printers' Association, the Bradford Dyers' Association and Bleachers' Association), with a range of specialist industry associations to fix prices and standardise product types. These organisations tended to a defensive approach, making a collective attempt to provide security to the industry by raising barriers to entry and co-ordinating a common front on price and product types available. As an approach, it is indicative of a Decline stage industry – but is an ineffective method of stemming decline.

A more dynamic approach was taken by Ferguson Bros., who diversified and developed new products and product types, with technical and design innovation to achieve new product benefits and achieve affordable price points as well as a proactive promotion strategy. Ferguson Bros. appears to have had a more strategic approach to design as part of wider product development, purchasing and developing particular design styles for targeted product brand ranges. In contrast, Turnbull & Stockdale Ltd. appear to have had a far less entrepreneurial approach (in terms of diversification and product development), although the absence of minutes necessitates a tentative judgement. They combined production of their own range with cheap commission-process printing for merchants and manufacturers – their own range all came under their own brand, but showed a fairly incoherent corporate identity, with a muddle of traditional, modernistic and modern designs in the 1930s, reverting back later to a more traditional style. There was some technical development, with the introduction of screen-printing, but no leading edge innovation in techniques and processes such as was being undertaken at Ferguson Bros. Ltd.

Overall, the engagement with industry organisations such as the Federation of Calico Printers seems to have encouraged a negative, anti-entrepreneurial focus on defensive mechanisms such as price setting and industry reorganisation schemes. However, the networking between design organisations by Turnbull & Stockdale Ltd. was beneficial in knowledge creation and distribution for the wider industry. It also helped Turnbull & Stockdale Ltd. by providing links to influential designers and design ideas, but took their focus away from developing their own competencies and product offering. Ferguson Bros. Ltd.’s position on the periphery of the main networks and industry cluster allowed them to take a more radical approach in marketing strategy, developing successful and distinctive product ranges.