Equity and non equity cooperative agreements : implications for small business performance

Abstract

This thesis examines the motivations and strategies of small business managing directors who enter into interfirm cooperative agreements, exploring the options to and with equity. Concepts are applied from the fields of economic and organisational theory, corporate strategy, and entrepreneurship, to both qualitative and quantitative data. The primary data is based on: (l) a two-country study across five industries, involving questionnaires which were administered to a large representative sample, and (2) over one hundred interviews. Small businesses are faced with some unique problems when considering whether or not to enter into an interfirm cooperative agreement These problems often arise because of limited resources in capital, human resources, and/or access to information, technology and markets. By nature, many managing directors of small businesses seek to use other people's resources, establish networks, and maintain greater flexibility than do their counterpart in large firms. However, they may not have the specialist skills available in a large firm when negotiating cooperative agreements, nor the time for an adequate search for the right partner. One contribution of this thesis is to support the findings of others in this field, which points to the critical importance of partner selection and patient negotiation. Another contribution of this thesis is the proposal of a framework on the relationship of factors (derived from observation and literature) important to selection of the type of interfirm cooperative agreement, and the performance of that agreement. Through the research, that framework is developed into a performance model assessing the statistical importance of each variable used in the model. Selected variables and factors for that model subjected to path analysis techniques explains nearly 50 percent of the performance of the firms in the data set. External influence of the industry and global environment, along with error terms explain a great deal of what remains. Although this research documents the continued and increasing use of interfirm cooperation among small businesses, it also highlights some differences in strategies. In the service industries equity interfirm cooperation is thought of as more important to the firms' performance, whereas non equity cooperation is preferred in the manufacturing industries studied. Larger firms are more likely to use equity agreements and seem to enjoy a higher level of performance than smaller firms using non equity agreements. Despite a close reliance of business on government through the early 1980's, managing directors surveyed rate government involvement in business as being very low in importance. New Zealand managers ere stronger in that opinion, but the trend away from government reliance is evident. Other conclusions that may be important to the small business managing directors involve the testing of eight null hypotheses; which relate to performance and such factors as managing director's experience, motivation for forming IFCs, country of origin, size of the firms involved, type of IFC formed, and industry differences.