Network competence in Finnish SMEs: implications for growth

The purpose of this paper is to examine how network competence is related to the growth of domestic and international SMEs originating from the Nordic region. Business networks have been found to drive internationalization of SMEs in the Nordic context, but the impact of network-related organizational competencies on them has not been considered.

The authors apply regression analysis on a sample of 298 Finnish SMEs across five industry sectors, gathered via an online survey in 2008, and with the data having been updated for its financial indicators up to 2010.

The authors find that cross-relational network competence is a significant predictor of growth in internationally operating SMEs. This result is robust across measures among the firms. In comparison, the network competence of domestically operating SMEs is not related to their growth, and relationship-specific competence does not influence growth.

The study does not account for longitudinal aspect of competence development. Growth is measured by the growth in sales and assets, and there are other ways to measure organizational growth. A single-country context also extends some restrictions on the generalizability of the results, although they could be expected to hold across small, open economies similar to Finland and the Nordic area.

The results imply that the strategic aims of SMEs determine their need for network competence, those SMEs seeking internationalization and growth through geographic expansion come to benefit from developing certain types of network competence.

Policy implications arise where governments in Finland and in the Nordic area may aid SMEs’ internationalization efforts by enabling the growth-seeking firms with increased resources for competence development.

This is the first study to examine how the organizational competencies to develop and manage business networks, in particular dyadic and network-level competencies, come to determine realized growth outcomes in domestic and international SMEs. It contributes to the theory of SME internationalization and international entrepreneurship from the business network point of view, while providing further knowledge on internationalization of SMEs originating from the Nordic area.