Pressure, Trust and Gift - Vertical Supply Chains an Global Price Pressure
Department of Social Sciences and Philosophy University of Jyväskylä University of Jyväskylä, Finland
In the recent decades the competitive environment of industrial enterprises has been changing rapidly. Rather predictable and often domestically oriented mass market has transformed to highly differentiated and volatile international market. In addition to this, the intensive international competition together with fast technological development has caused a declining price trend in many industries. The aim of the paper is to study Finnish small and medium sized suppliers in the context of the global price pressure. The paper is based on in depth interviews of managers of small and medium sized entrepreneurial suppliers and their customers. The paper, firstly, analyses how SMEs manage the rising importance of networks, intensified globalizing competition and price pressure. Secondly, the paper analyses the importance of social networks and trust in strategies of SMEs.
Institutionalized networks relations with large corporations are very important for small suppliers. They e.g. offer a privileged channel to resources, such as knowledge and information and public funded development projects. They also increase negotiating power of small firms against material suppliers. Trust often acts as an entry ticket to business networks. Trust and social proximity with network ?switchmen? lubricate the coordination of cooperation by easing the interaction. Thus it is important for suppliers to establish close social relations with the actors in the switchman positions. Suppliers have, for example, recruited a key employees or partners from their customer organizations to utilize their close social relations with switchmen. Another typical means for creating social proximity with switchmen are social gatherings in a form of hospitality. The gatherings act as a gift institution which is very effective means to build social proximity (Mauss). Simultaneously very deep commitment and trust in asymmetric supplier customer relationships may create lock in effects. The efforts of suppliers to create their own products with their own intellectual property rights can be interpreted as a lack of commitment by the large customers. Tight commitment to one key customer, on the other hand, erodes the small suppliers? credibility in the eyes of other potential customers.