5.6 The Network Theory
In today’s competitive era, the performance of a firm does not depend only on its
direct partners and indirect partners. Hence, the way in which a firm interacts with
other firm becomes significantly important in this era. The way the firm interacts
with other firms decides the formation of a new resource. Thus the two firms
combine together to develop synergies and to learn from each other’s strengths. The
network theory provides an understanding of the importance of relationship between
two organisations, whether it is build-up of trust or long term relationships or using
of each other’s systems and processes.
The relationship between two firms in a network is enhanced by two kinds of
processes i.e. the exchange process wherein the two firms exchange information,
goods, services etc. while the other is adaptation process where the two firms learn
and adapt to each other’s processes such as legal, administrative logistics etc.
(Johanson and Mattsson, 1987).