Yeirang Lee-Application Assignment #4

Yeirang

Application Assignment #4

Interview

Understanding the Role of Social Networks

In this week’s reading, a lot of the material is focused on the process, motivation, and consequences of alliances that drive organizations today. While the readings largely focus on case studies and empirical research, a lot of theory is discussed as well. For example, Gulati discusses different levels of analysis in alliance theory from the dyadic level to the larger network and Barney and Hansen discuss that different levels of trust are built depending on different external environments and cost-effective depending on different competitive environments. In this application I will interview a CEO of a start-up company, selling Insam (a Korean medicinal plant which is considered very healthy in Asian countries. His start-up, I feel, helps us see that although alliance theories are complex, they can be simplified and reduced to a stronger analysis in which we can produce inductive conclusions.  Thus, looking from the analysis of Gulati’s alliance theory based on social networks, I will try to ask pertinent questions to my interviewee and see whether his analysis aligns with his experience.

Can you give a brief introduction of yourself?

My name is Cho Pyo Shik. I am 54 years old. I recently retired from being a manager at a Traveling Agency three years ago, and I began my own company selling In-sam. My company revenue has reached 4 million per year and is continuing to grow. It has been a very difficult path, but I am reaping the fruits now.

What has been the key factor in the success of your company?

I would definitely say networking. Although a lot of management is involved, my work is finding the right sellers and buyers. I play largely the middle-man role, where I try to find very good-quality In-sam, and also be able to find the buyers of In-sam at a relative good price. Out of the two jobs, finding the demand is more important and critical to the company because of the large competition and the buyer-oriented economy. For me, focusing on networking takes the largest priority and covers 60% of my time.

Why was networking so important for you?

Networking was vital because for me to grow my own In-sam, I would have to buy land, buy the seeds, and spend a significant time focusing on researching the product. Rather the current farmers, who have spent hundreds of years in developing In-sam are the ones who can reduce costs for me and be very cost-effective. Also, finding customers on the street is very difficult, and I would be wasting my time trying to sell products to people who don’t want to buy In-sam. Rather by find the alliances who can provide the people who are interested in In-sam are the key to increasing revenue. By finding alliances with supply and demand companies, I can reduce my opportunity cost in investing resources into the two fields and be able to utilize networking by being the middle-man.  This way I am reducing costs significantly, and creating a cost-effective strategy.

How do you go about finding these alliances?

A lot of my network has stemmed from my networks from my work-experience at the Travel Agency. Although my company is in Korea, most of my customers are actually Chinese. Because of the new Korean wave and influence of Korean dramas in China, many new-middle class Chinese citizens are interested in Korean products. From their perspective, Korean people are very healthy and during the SARS crisis in 2002, only 4 Koreans were accounted for being affected by SARS. These Chinese customers are convinced that In-sam is one of the critical reasons they think why Korean people are healthy. Thus, I networked with the Chinese traveling agencies I currently knew and the relationship and trust I developed with them was enough for me to work with them.

Finding the supply was a bit trickier. I didn’t have the embedded networks as I did with the Chinese travel agencies. In Asia, especially Korea, networking is key to gaining confidence and assurance in your product. Because of the increasing product scandals in society, In-sam is also subject to variety of fake, low-quality, look-alike In-sams. When I found my supply side, rather than actually trying to find people on my own, I went through  two hoobae (someone who graduated from the same school but graduated after you), whose families actually grows In-sam. This is a common tradition in Korea, where school connections are as strong as friendship because of our mutual friends. Both hoobae were able to teach me and warn me about fake In-sams, and were able to give me a reasonable price. I was able to check if their information was reliable by checking with the other hoobae.

What types of contracts do you use to formalize the alliance?

In Korea, when school and family friends are in business, contracts are signed with what’s called do-jang (a stamp like figure). We agree on the type of product and the amount, but beyond contracts, we try to help each other in other areas to solidify our relationship. For example, I took my hoobae’s family on a tour of China or helped them whenever they needed traveling assistance. This way, my hoobae’s family treated me as their number one customer and gave me priority on their sales.

How do the alliance and the partners’ participation evolve over time?

As a growing company, I needed to find more supply and demand. I could go to internet sides, advertisement, or visit large markets, but I found all these methods impractical. I was able to get better In-sam at a much lower price from the connections of my hoobae’s family. They introduced me to more reliable farmers, and meeting them in person (buying them a meal or having a light drink with them), we were able to build trust fast through my hoobae. I have relied more and more on my hoobae and they have been very helpful in assisting me. For the supply, I have a strong competition from other sellers of In-sam, but my relationship with the Chinese travel agencies have grown stronger. I give them remission from my sales, keeping them happy, and giving customers extra Korean gifts for buying my In-sam, to keep them satisfied as well. Moreover, they know my products are safe and well-made, which helps their image a lot. Once my customers and travel agencies were satisfied, the travel agencies were able to introduce me to other firms who wanted my goods and services.

What factors influence the success of alliances?

As I mentioned before, in Asian culture, it’s not just about paper and contracts. Rather one has to build strong relations with the companies head. Asian companies are always hierarchical and very centralized. Decisions are made from the top, so the executives are the ones who need to be ultimately satisfied. So my work has been networking with them, whether it’s through meals, drinks, assistance, traveling advice, giving them lip-service and doing favors, I need to focus my energy on them if I want to expand my company and attain reliable demand and supply. There are too many scandals and international law enforcement with Chinese companies are extremely long and complex. Rather, my method of networking has been the key factor to my success.

What is the effect of alliances on the performance of your firm?

When one Chinese traveling company backed out on a large deal, I did not panic because my other companies were reliable and helpful. They heard about my situation, and they assisted me in finding other Chinese companies they knew to recover my loss. Volatile situations can come about in any business, but making sure that you constantly communicate and discuss with the companies is key. These alliances are not just alliances, but developing alliances. It’s critical in how you develop that alliance rather than keeping them status quo.

From my interview analysis, the company of my interviewee delineates the role of social networks in creating a successful firm. As Gulati mentions in his paper, social networks are critical in developing new partnerships, the structure of the partnerships, and the evolution of the partnership. My interviewee’s company ultimately relied on his social networks in building a safe connection of demand and supply. This safe connection was developed and improved through a strong trust. As Barney and Hansen mention, strong trust is developed under situations where values, standards, and principles of behavior are agreed by both groups. The interviewee was able to find such companies through his social networks. Moreover, they mention that this strong-trust is cost-effective when the trust between firms in that market is rare, which is what the interviewee discussed. Although alliance theories can be complex and difficult, this case analysis goes to show that theories can be simplified and understood in many contexts.