Journal of Small Business and Enterprise Development

Does size matter?: A study of firm behavior and outcomes in strategic SME networks
Joakim Wincent,
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Strategic SME
Does size matter? networks
A study of firm behavior and outcomes in
strategic SME networks
Joakim Wincent 437
Department of Business Administration and Social Sciences,
Division of Management Control, Luleå University of Technology,
Luleå, Sweden

Abstract
Purpose – To develop and empirically test a framework on how firm size can matter for firm
behavior and performance in strategic networks of small and medium-sized enterprises (SME
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networks).
Design/methodology/approach – Empirical study based on statistical analysis of standardized
questionnaires and analysis of interview material from face-to-face interviews with managers in a
population of 54 firms that operates in SME networks.
Findings – Firm size can be an important determinant for firm performance, and for networking
inside and outside the SME network. Different networking behaviors are found to have different roles
for pursuing corporate entrepreneurship and for gaining performance effects in interaction with
corporate entrepreneurship.
Originality/value – Prior research has suggested larger firms as valuable for holding firms in SME
networks together, but has not put much effort in explaining why and how, and what they gain from
doing this. This study advances these suggestions by showing how larger firms can prosper
simultaneously as they bind firms together in these networks. Since firm size may determine
networking behavior and outcomes in SME networks, the suitability of a larger vs a smaller firm size
for SME network participation is discussed.
Keywords Small to medium-sized enterprises, Networking, Strategic alliances, Strategic business units,
Trust
Paper type Research paper

Introduction
Although the effects of firm characteristics on firm performance among firms in
on-going cooperation have gained some attention, studies regarding the effects of firm
size have been virtually non-existent. Yet, this is a construct of scholarly interest since
it traditionally has much explanatory power, and an understanding of its importance
can be vital for managers who operate in environments such as strategic networks.
When using this construct in on-going cooperation, this study poses the question: does
firm size matter for firm behavior and, ultimately, for firm performance among firms
that participate in strategic networks? In this paper, there is an emphasis on the effects
of firm size in strategic networks of small- and medium-sized firms (SME networks).
These networks have become quite popular in, firstly, European Union policy-making Journal of Small Business and
programs due to beliefs that they can foster enhanced competitiveness and renewal for Enterprise Development
Vol. 12 No. 3, 2005
its participators and, secondly, since a significant amount of practitioners today seem pp. 437-453
to work in such networks in order to develop and strengthen their enterprises (see also q Emerald Group Publishing Limited
1462-6004
Ahlström-Söderling, 2003; Steward and Conway, 2000; Cooke and Wills, 1999). DOI 10.1108/14626000510612330
 JSBED Although SME networks are similar to most alliances, joint ventures, and
12,3 partnerships, all firms in these networks do not need to interact directly with each other
(Varamäki and Vesalainen, 2003). Rather, “network logic” is built upon smaller
overlapping sub-groups of firms where strategic integration is present. The
configuration of the sub-groups can be rather dynamic, since the idea is that
membership firms should jointly perform work tasks to overcome the natural
438 disadvantages that SMEs have, such as a lack of resources and limited market power.
An administrative organization often renders the participating firms by indirect
support to joint projects (Human and Provan, 1997), where firms participate with united
efforts to develop their business operations or exchange/share resources for strategic
implementation in joint productions, product development, or marketing issues.
Despite the potential to improve firm performance when participating in an SME
network, membership firms face external challenges, such as free riding, opportunism,
and uncertainty of outcomes, when operating with partly independent members that
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can be competitors (Human and Provan, 2000). Therefore, using the membership (i.e.
the other members) in the SME network to improve firm performance may be a
beneficial – yet challenging – task for a participating firm. In a world where resources
and social control are important, firms engaging in SME networks face multiple
alternatives, but also a variety of limitations for firm behaviors. Since very small firms
(with just a few employees) cooperate with rather larger, medium-sized firms (that may
have several hundred employees), it is suggested that larger firms are better equipped
to prosper in this context on basically the same premises as they have been argued to
contribute to, and hold such networks together in prior work (Nilsson and Nilsson,
1992). It is not by their firm dispositions per se, it is because their size determines the
behavior both inside and outside SME networks, thereby creating implications both on
the network-level, and as posited here, for firm performance.
This paper presents a conceptual framework, tested on 54 wood-manufacturing
firms participating in two adjacent SME networks. Although the data have some
generalization restrictions, it is possible to highlight the multifaceted impact that firm
size can have on behavior and outcomes for firms strategically cooperating in
networks. It is furthermore possible to underscore the importance of not viewing firms
in an SME network as isolated from other networking environments, and not
conceptualizing all relations in networks as homogeneous when analyzing networking
activity both within as well as outside the SME network with customers, suppliers, and
competitors. Finally, the study contributes to the growing work on corporate
entrepreneurship, since it includes both antecedents and consequences of this construct
when modeling performance effects in the context of SME networks.

Conceptual framework
Figure 1 summarizes this study’s framework, where larger firms are proposed to be
better equipped to gain performance effects in SME networks via indirect effects from
trust, networking, and corporate entrepreneurship. This is elaborated in more detail
below.

Firm size, networking and trust

Conceptually, SME networks can be thought of as “intentionally formed groups of
small and medium-sized, profit-oriented companies in which the firms: are
 Strategic SME
networks

439

Figure 1.
Conceptual framework on
how firm size matters for
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firms in strategic SME

networks

geographically proximate; operate within the same industry, potentially sharing inputs
and outputs; and undertake direct interactions with each other for specific business
outcomes” (Human and Provan, 1997, p. 372). Therefore, this type of network is
strategic in its very nature, since it includes created, organized cooperation within clear
boarders with a purpose to reach common goals (Jarillo, 1988; Van de Ven and Ferry,
1980) in a type of network organization.
Firm size, proposed as an important characteristic to gain performance effects in
such networks, can be regarded as a proxy for resources where larger firms usually
possess more product lines and higher production capacity together with
organizational resources and slack (Alvarez and Barney, 2001; Koh and
Venkataraman, 1991; Penrose, 1959). Although smaller firms may be more flexible
(Chen and Hambrick, 1995), it can be argued that larger firms have better prerequisites
for behavior compared to their smaller counterparts in SME networks. In fact, based on
the premises just mentioned, larger firms may be better equipped to engage in
inter-firm networking both in width (number of networking actors) and depth
(networking intensity with the actors), inside the SME network (with other
organizations) as well as outside the SME network, where customers, suppliers and
competitors are the most prominent actors (Freel, 2000). Both incitements and the
ability to engage in networking are likely to be restricted if one’s resources, or the
ability to transfer value to internal operations are not enough (Alvarez and Barney,
2001). Since networking, defined as actions to access information, assistance, and
guidance in business development issues (based on Chell and Baines, 2000; Covin and
Slevin, 1991; Zahra, 1993b) can be performed in the two networking environments, we
posit that larger firms in SME networks are more likely to engage in networking in
comparison to smaller ones concerning width and depth, regardless of performance
inside or outside the SME network.
H1. Larger firms in SME networks exhibit higher (a) networking width and (b)
networking depth with other firms in the SME network.
 JSBED H2. Larger firms in SME networks exhibit higher (a) networking width and (b)
12,3 networking depth with other firms outside the SME network.
Based on the same reasons, but when also highlighting the occurrence of resources and
power, larger firms are also posited to exhibit more trust to their cooperative partners
in the SME network compared to their smaller counterparts. Trust (from the firm’s own
perspective) includes a type of expectation that alleviates the fear of opportunistic
440 behavior from cooperative partners (Bradach and Eccles, 1989) and a level of
confidence that a firm has for its cooperative partners in matters of reliability and
integrity to accomplish their obligation in the partnership (Madhok, 1995). For
networks and firms in strategic cooperation, it has been shown that trust can serve as a
substitute for, or a complement to, more formalized governance structures (Zaheer and
Venkatraman, 1995). Therefore, trust is originated from social control, meaning that
firms characterized by high levels of trust in cooperative partners will expect less
potential drawbacks from exposure to possible losses or harm derived from actions
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taken by its partners in a situation of dependence and uncertainty (Madhok, 1995).

Since a larger firm size can be considered a proxy for power and influence in
cooperation where “hub-firms,” “locomotive companies,” “dragons,” and other concepts
often are mentioned to describe these actors in network environments (Nilsson and
Nilsson, 1992; Jarillo, 1988), larger firms may naturally develop trust due to power and
influence. It seems reasonable that larger firms do not experience their partners having
the courage to behave opportunistic or shirk their responsibilities. Consequently,
H3. Larger firms in SME networks show higher degrees of trust in their
cooperative partners in the SME network.

Trust, networking and corporate entrepreneurship

Mayer et al. (1995) suggest it is likely that opportunism, conflicts, and unwillingness to
support cooperative partners become prevalent when there is a lack of trust between
cooperative partners in networks. However, when trust is present, the valuable
exchange between cooperating firms is positively affected. Therefore, it can be argued
that in an SME network, firms that trust their partners are more likely to engage in
networking with them, both in width and depth.
H4. Firms that have high degrees of trust in their cooperative partners in the SME
network exhibit more (a) networking width and (b) networking depth inside
the SME network.
However, the mechanisms of trust are also likely to guide firms that trust their
cooperative partners in the SME network, to engage less in networking outside the
SME network due to inherent mechanisms in the two network environments. Table I
illustrates the likely differences between both environments, if drawing from
conclusions of prior work on strategic cooperation vs. more organic unorganized
cooperation (see for example Das and Teng, 2002; Freel, 2000; Jarillo, 1988, 1993).
Since inter-organizational networking is a procedure for translating resources from
one firm to another and may include information, signaling, advice, and problem
solving (Hoang and Antoncic, 2003), an SME network can be argued to be the first
alternative since firms within it cooperate with other firms in purposive strategic
relationships to reach goals and benefits together in mutual dependence (see also
 Human and Provan, 1997). Outside the SME network, outcomes from networking can Strategic SME
be argued to be less predictable depending on which resources are found. This network networks
environment can be considered as more organic, since it includes cooperation among
firms carrying out traditional buyer-seller activities, are more unplanned, borderless,
and have no request for common goals (Cook and Emerson, 1978). Therefore, firms in
SME networks that have developed trust towards their partners within the SME
network are more likely to turn to those firms than try to network with organizations 441
outside the SME network. After all, a firm only possesses a certain amount of
resources, and networking is resource demanding.
In an SME network, mutual interdependencies and integration between the
operating firms are likely to promote value in networking, since the partners should
know each other’s needs, and act supportively. Going on the outside is riskier and more
unpredictable.
H5. Firms in SME networks that have high degrees of trust in their cooperative
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partners in the SME network exhibit less (a) networking width and (b)
networking depth outside the SME network.
It can also be argued that trust for cooperative partners in an SME network matters for
the level of corporate entrepreneurship. Zahra et al. (1999) have pointed out trust as
important for a firm to cope with corporate entrepreneurship. Because strategic
cooperation demands a firm to adapt its operations (Jarillo, 1988), it is likely that high
degrees of trust towards a firm’s cooperative partners would positively affect the
corporate entrepreneurship processes of innovativeness, risk taking, and proactiveness
for a firm in an SME network. Corporate entrepreneurship does, by definition, lead to
uncertainty and challenges for the single SME network participator, and when
participating in an SME network the firm is at least partly integrated with its
cooperative partners. Arino et al. (2001) suggest that the likelihood for a firm to pursue
possibly essential actions to respond to changes in the competitive and economic
environment increases when having high levels of trust for cooperative partners. It also
increases the possibilities to willingly cooperate more intimately, and possibly foster
entrepreneurial activities.
Drawing from this, it seems reasonable that the likelihood of pursuing corporate
entrepreneurship is enhanced more if the focal firm has trust for its colleagues in the
SME network when tackling the challenges associated with corporate
entrepreneurship than those firms that cannot, or will not cooperate with trusted
partners. Therefore:

Networking inside the SME network Networking outside the SME network
Conceptual distinction Conceptual distinction

Mutual interdependencies Access to a diversity of resources and

competences
Purposeful cooperation and similar goals Less static in access to actors/no size limitations of
the network Table I.
Conceptual differences
Stabile access to referrals and legitimacy, high More likely to be based on trade/exchange inside and outside of the
degree of closure relations that may be of “arm-length” character SME network
 JSBED H6. Firms in SME networks who have higher degrees of trust in their cooperative
12,3 partners in the SME network show higher degrees of corporate
entrepreneurship.
It is also expected that networking should be critical in corporate entrepreneurship.
One can argue that without value tapping, it is unlikely that a firm’s innovativeness,
risk taking, and proactiveness becomes enhanced, since networking is the procedure in
442 which resources are tapped to corporate entrepreneurship regardless if the resources
are associated to back up in areas of problem solving or information exchange (Hoang
and Antoncic, 2003). Therefore, firms with higher degrees of networking both in width
and depth, with cooperative partners in the SME network as well as with firms outside
of it are likely to show higher degrees of corporate entrepreneurship than firms with
lower degrees of networking.
H7. Firms in SME networks who have higher degrees of (a) networking width and
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(b) networking depth inside the SME network show higher degrees of
corporate entrepreneurship.
H8. Firms in SME networks who have higher degrees of (a) networking width and
(b) networking depth outside the SME network show higher degrees of
corporate entrepreneurship.

Corporate entrepreneurship, firm performance and the moderating role of networking

Corporate entrepreneurship has generally been shown to be positive for firm
performance (Lumpkin and Dess, 1996; Wiklund, 1998, 1999; Zahra, 1991, 1993a,b;
Zahra and Covin, 1995), though it requires suitable structural and environmental
prerequisites to pay off (Lumpkin and Dess, 1996). SME network participation is
proposed to invite such prerequisites. Operating in such a network encompasses a firm
with inter-firm linkages of strategic significance that provides a firm with resources,
technologies, and markets so as to aid in achieving its strategic objectives (Jarillo,
1993). When a firm pursues corporate entrepreneurship, the SME network membership
is likely to offer a back-up and be a supportive institution to the participating firm. The
firm can use legitimacy or gain direct as well as indirect assistance from the other
membership firms just by being a member. Thus, the possible drawbacks of pioneering
concerning heavy investments and safeguard efforts against imitation of competitors
that might be harmful to performance (Miller and Friesen, 1984) can be surmountable
through participation in SME networks. Membership firms in strategic networks that
take on risky challenges, act proactively towards their environment, and engage in
making new products should indeed be supported by their partners, due to the mutual
interdependences that connect the firms. Consequently, the relationship between
corporate entrepreneurship and firm performance should exist for firms operating in
SME networks. Therefore,
H9. Firms in SME networks with higher levels of corporate entrepreneurship
show better firm performance.
It can also be argued that the relationship between corporate entrepreneurship and
firm performance is moderated by networking width and depth, both inside and
outside the SME network. Hoang and Antoncic’s (2003) review of entrepreneurship
research about networking indicates that a firm’s resource flow from its network has
 important consequences when treated together with entrepreneurial activity. If Strategic SME
starting with networking inside the SME network, it seems likely that strategic networks
organizing can support the effects of networking to make the corporate
entrepreneurship-performance relationship stronger as corporate entrepreneurship
demands the firm to continually reconfigure its skills and resource base. A
membership firm can, of course, lean on its own efforts. However, when a firm is
connected to a strategic network it seems wise to cooperate with other members due to 443
their mutual independence and integration (Das and Teng, 2002). Otherwise it can be
difficult to maximize benefits from corporate entrepreneurship. Moreover, based on the
prerequisites of being a participator in an SME network, a firm in such a network is
likely to receive valuable support when pursuing corporate entrepreneurship due to
common interests and mutual benefits between the participators (Cf. Spekman et al.,
1998). Therefore, it can be valuable for the firm to pursue networking both in terms of
width and depth with other firms in the SME network when engaging in corporate
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entrepreneurship to gain firm performance benefits. Thus, networking with other

members inside the SME network should be beneficial for the transformation from
corporate entrepreneurship to firm performance.
H10. The width and depth of networking inside the SME network will moderate the
relationship between corporate entrepreneurship and firm performance:
among SME network participators with high levels of (a) width and (b) depth
of networking inside the SME network, higher corporate entrepreneurship is
related to better firm performance.
If turning to a possible moderating effect of inter-firm networking outside the SME
network, it seems reasonable to propose the phenomenon to be as important for firms in
this context for firm performance when performing corporate entrepreneurship as it has
been shown for more autonomous firms in “regular” settings. Advantages of utilizing
firms outside the SME network can include faster market penetration, access to
complementariness, sharing risks, and access to competitively valuable knowledge that
all are supportive ingredients when transferring corporate entrepreneurship to
performance benefits (Ireland et al., 2001). Granovetter’s (1973) notion of weak ties
might be well supportive in this networking environment to the extent that firms can get
access to diverse information to implement the entrepreneurial activity in the marketplace
through relations that lie outside of those inside the SME network. For example, a new
customer or supplier (or sporadic contact) could constitute a valuable contact to transfer
corporate entrepreneurship into firm performance. Although most relations are likely to
be based on exchange and trade that can be more of an “arm-length” character, this
network environment lacks clear boundaries, making it possible to use networking where
suitable for the firm. Therefore, when going outside the SME network, both in terms of
networking width and depth, the firm is free to choose partners in a less static composure
of organizations. Such a behavior is likely to strengthen the relationship between
corporate entrepreneurship and firm performance. Consequently,
H11. The width and depth of networking outside the SME network will moderate
the relationship between corporate entrepreneurship and firm performance:
among SME network participators with high levels of (a) width and (b) depth
of networking outside the SME network, higher corporate entrepreneurship is
related to better firm performance.
 JSBED Research methods
12,3 Data collection
The study was accomplished by collecting data from 54 firms committed to SME
networks. The studied firms constituted the entire cadre of active members that had
been operating in two related, but distinct networks from 2000 to 2002, which was the
chosen time period to explore. Therefore, the data used for this study can be considered
444 as derived from a whole population of firms rather than a sample, since external
validity may be naturally problematic when studying firms in networks. All 54 firms
were related to wood manufacturing and conducted business on the same markets. The
purpose and direction of both SME networks were similar. Both strived to strengthen
competitiveness by inter-firm cooperation between the participating firms. Joint
development projects and marketing approaches occurred in both networks. As a
result, firms from these two networks were considered as suitable to utilize as a
population large enough to be statistically meaningful, while still avoiding external
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variance such as from region and industry.

Apart from the membership firms, an administrative organization facilitated
cooperation between the participators in both networks. Personnel working in these
organizations provided registers of membership firms and additional valuable
information before the firms in the networks were contacted. One SME network had 24
active members, the other 30. All of the studied firms had to some extent visited
meetings, participated in joint projects or joint businesses, and considered themselves
as members in the network.
Data collection was accomplished by standardized questionnaires collected from
face-to-face interviews with CEOs in each membership firm, complemented by other
managers whenever necessary (mainly to receive a better picture of the firms
networking behavior, since not only the CEO networked with other firms). This was
done to address possible estimation problems that can occur when using single
informants. The CEO was asked to get assistance when he or she was unsure about the
question asked. When many respondents were present, the collected data were what
the respondents jointly agreed upon after they discussed the question among
themselves. However, most cases relied solely on the CEOs’ statements. All data
concerned a two-year period (i.e. 2000-2002). Besides collecting data from a
questionnaire, additional interviews were conducted to illuminate the phenomena
studied. Material from the interviews is used to elaborate the results in the discussion
part of the paper.

Measurements used
Firm size. Although firm size can be measured in several ways, it was measured by
using the log-number of full-time employees, since the theoretical arguments in the
framework derived its origin in power, resources, and “observed size.”
Trust. Four items measured on a five-point Likert scale developed from Sivadas and
Dwyer (2000) captured a firm’s trust in its cooperative partners inside the SME
network. Ratings ranged from “strongly disagree” to “strongly agree,” concerned
perceptions over the last two years, and stated: our cooperative partners had the ability
to contribute to the cooperative projects; they were capable of doing their part; their
motives could never be questioned; and we trusted that they would act in our
company’s best interest (a ¼ 0:91).
 Networking with partners in the SME network. Networking width and depth in the Strategic SME
SME network was measured by questions that regarded time spent on personal networks
meetings or telephone conversations with other strategic network participators in
terms of information, assistance, and guidelines concerning business development
related to the focal firm. A list of all other membership firms in the SME network was
provided, allowing the respondents in each participating firm to indicate how much
time their firm had networked annually with each of these firms in the last two-year 445
period. Depth was measured by using a yardstick developed to capture how many
working days (i.e. eight hour packages) that a focal firm had been in contact with each
of the other membership firms in the previous mentioned matters. Width was
measured by the number of contacts the firms had networked with.
When designing the research project, administrative employees of the organizations
were contacted. Since they followed the participators in their daily work they had some
background information about the firms’ networking behavior, considered important
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when developing the networking measurements. It was stated that some firms spent
very much time together, while others had only sporadic contacts. Based on this and
the framework presented, the scale was designed to capture five levels of networking.
The five steps possible were:
(1) no networking at all;
(2) 0.5 packages;
(3) 2.5 packages;
(4) 10 packages; and
(5) 20 packages.

From these, respondents had to select the step that best measured their time spent.
When a firm stated that it had invested more time with a membership firm in these
matters, it was asked how much, and counted eight-hour packages from that score.
Networking depth was then measured by adding the number of eight-hour packages
that a firm has had with other participators and calculating the natural log number
from that score, while networking width was measured by counting the number of
firms that a firm has networked with and calculating the natural log number.
Networking with organizations outside the SME network. Time spent on personal
meetings or telephone conversations with customers, suppliers, and competitors
regarding information, assistance, and guidelines that concerned the focal firm’s
business development were utilized to capture the depth of networking outside the
SME network. Interest was directed towards how much time their firm had spent on
each of these categories per year in the last two-year period. The same five steps as
networking inside the SME network were possible to use for the four categories, i.e.:
(1) no networking at all;
(2) 0.5 packages;
(3) 2.5 packages;
(4) 10 packages; and
(5) 20 packages.
 JSBED As was the case with networking inside the SME network, the networking depth score
12,3 was maintained after counting the sum of time spent by adding the number of eight
hour packages from the three types of organizations of interest, and calculating the
natural log number from that score (a ¼ 0:69), when including the three types of actors
in the same construct). Networking width outside the SME network was calculated by
the natural log number of how many firms outside the SME network were contacted by
446 the firm in the mentioned issues.
Corporate entrepreneurship. A five-point Likert scale developed by Zahra and Covin
(1995) (based on Miller and Friesen, 1982) was used to measure the degree of corporate
entrepreneurship. The Likert scale contained items that regarded risk taking,
proactiveness, and innovativeness. This scale ranged from “strongly disagree” to
“strongly agree” and is developed to account for actual events in the studied firms
during the last two-year period (a ¼ 0:72). Although many of the existing corporate
entrepreneurship scales have been shown to be highly reliable, this scale was chosen
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because it is designed to capture pure actions over a time period, secluded from
attitudes of firm managers.
Firm performance. A common way to measure firm performance in corporate
entrepreneurship studies is market and financial aspects (Covin and Slevin, 1991;
Zahra, 1993b). In order to compare to extant studies, and to harmonize to the context
studied, four self-reported measures were used as an index to measure firm
performance, consisting of sales growth, customer satisfaction, productivity, and
profitability. The CEO reported the firm’s performance compared to wood industry
competitors on a five-point Likert scale ranging from 1 ¼ “much below average” to
5 ¼ “much above average”. These measures concerned both the year 2000 and the year
2002. A change score was calculated by deducting the 2000 score from that of 2002.
The change score was then utilized as the firm performance index (i).
Control variables. There are many variables that may influence the proposed
process of how firm size relates to firm performance (i.e. trust, networking, and
corporate entrepreneurship). To balance between statistical control validity, internal
validity, as well as parsimony reasons, three control variables were entered in the
model, i.e. environmental dynamism, environmental hostility, and prior firm
performance. Items based on Miller and Friesen’s (1982) measurements were used to
capture environmental dynamism and environmental hostility. The performance 2000
measurement was used to control for prior firm performance influences.

Method of analysis
To attain an acceptable size of cases for testing the stated hypotheses, firms from the
two strategic networks were merged in the analyses. H1 to H9 were tested with path
analysis, specifically controlling for misspecification bias. Since the proposed
framework includes a system of relationships where firm size is associated to firm
performance via indirect relationships to other variables, misspecification bias exists if
other relationships are not recognized (such as a direct relationship between firm size
and firm performance). To control for all such potential, but not hypothesized
relationships, competing models that systematically controlled for such significant
relationships were tested stepwise, with the aim to present a final model that included
all significant relationships. H10 and H11 (the moderators) were tested by hierarchical
regression techniques to be able to detect significant changes in adjusted R 2 when
 including a proposed moderator in the regression model. Given the small sample and Strategic SME
the model complexity, a significance level of 0.1 was used in the analysis to avoid Type networks
II error (accepting the null hypothesis when it should have been rejected).

Findings
The first analysis step tested hypotheses 1 to 9 with path analysis in a model including
control variables. The originally proposed model reached convergence without any 447
boundary conditions. Estimated path coefficients are shown in Table II as “path
coefficients in the hypothesized model”. To control for misspecification bias, we
included not hypothesized paths stepwise in the competing models, thereby adding
potential indirect effects while retaining those paths that showed significance for the
next analysis step. The only path found significant was between firm size and firm
performance. The final model (e.g. revised model) showed acceptable fit statistics
(x2 ¼ 23:42, df ¼ 15, p ¼ 0:08, NFI ¼ 0:87, IFI ¼ 0:95, CFI ¼ 0:92, x2 =df ¼ 1:56).
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Table II displays the estimated coefficients of the revised model used for evaluating
the hypotheses. Regarding H1a and H1b, it is shown that larger firms in SME
networks exhibit higher networking width (b ¼ 0:24, p , 0:1) and networking depth
(b ¼ 0:41, p , 0:01) in the SME network. Similarly, H2 was supported since larger
firms in SME networks exhibit higher networking width (b ¼ 0:39, p , 0:01) and
networking depth (b ¼ 0:56, p , 0:01) regarding firms outside the SME network.
However, H3 was not supported since larger firms in SME networks did not show
higher degrees of trust in their cooperative partners in the SME network. Although not
significant, the coefficient was still slightly negative if considering the population at
hand. H4 was supported since firms in SME networks that have high degrees of trust
in their cooperative partners in the SME network exhibit higher networking width
(b ¼ 0:26, p , 0.01) and networking depth (b ¼ 0.20, p , 0.05) in the SME network
than firms with lower degrees of trust in their cooperative partners in the SME
network. Contrary to what was proposed, firms in SME networks that have higher
degrees of trust in their cooperative partners in the SME network exhibit more
networking width (b ¼ 0.40, p , 0:01). Furthermore, these firms did not exhibit less
networking depth outside the SME network; hence, H5 was not supported. Consistent
with H6, firms in SME networks who have higher degrees of trust in their cooperative
partners in the SME network showed higher degrees of corporate entrepreneurship
(b ¼ 0:21, p , 0:1). Partially supporting H7, firms in SME networks that have higher
degrees of networking width in the SME network did not show higher degrees of
corporate entrepreneurship. However, firms with networking depth in the SME
network significantly showed higher degrees of corporate entrepreneurship (b ¼ 0:26,
p , 0:1). Corporate entrepreneurship was unaffected by networking outside the SME
network, resulting in no support for H8. This was also the case for H9, since firms in
SME networks with higher levels of corporate entrepreneurship did not show better
firm performance.
To test the moderating hypotheses between corporate entrepreneurship and firm
performance (H10 and H11), a series of hierarchical regression analyses were
conducted. Support was found only for H11b stating that networking width outside the
SME network will moderate the relationship between corporate entrepreneurship and
firm performance, so that among SME network participators with high levels of
networking width outside the SME network, more corporate entrepreneurship was
 JSBED
Path coefficients
12,3 Dependent variable Hypothesis Hypothesized model Revised model t-value

Trust
Environmental hostility 20.09 20.09 2 0.63
Environmental dynamism 0.17 0.17 1.14
448 Prior performance 0.02 0.02 0.13
Firm size H3 20.06 20.06 2 0.46
NW inside SME network
Environmental hostility 0.10 0.10 0.68
Environmental dynamism 20.17 20.17 1.20
Prior performance 0.05 0.05 0.34
Firm size H1a 0.24** 0.24** 1.90**
Trust H4a 0.26* 0.26* 2.01*
ND inside SME network
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Environmental hostility 0.02 0.02 0.18

Environmental dynamism 0.10 0.10 0.72
Prior performance 20.21** 20.21** 2 1.70**
Firm size H1b 0.41* 0.41* 3.41*
Trust H4b 0.20** 0.20** 1.6**
NW outside SME network
Environmental hostility 0.14 0.14 1.0
Environmental dynamism 20.17 20.17 2 1.2
Prior performance 20.04 20.04 2 0.34
Firm size H2a 0.39* 0.39* 3.2*
Trust H5a 0.40* 0.40* 3.2*
ND outside SME network
Environmental hostility 20.08 20.08 2 0.64
Environmental dynamism 20.16 20.16 2 1.2
Prior performance 20.14 20.14 2 1.2
Firm size H2b 0.56* 0.56* 4.9*
Trust H5b 20.06 20.06 2 0.54
Corporate entrepreneurship
Environmental hostility 20.24** 20.24** 1.8**
Environmental dynamism 0.12 0.12 0.88
Prior performance 20.22** 20.22** 2 1.8**
NW inside SME network H7a 0.01 0.01 0.07
ND inside SME network H7b 0.26** 0.26** 1.6**
NW outside SME network H8a 0.15 0.15 1.0
ND outside SME network H8b 0.07 0.07 2 0.45
Trust H6 0.21** 0.21** 1.6**
Firm performance
Environmental hostility 0.01 20.14 1.2
Environmental dynamism 0.30* 0.27* 2.3*
Prior performance 20.51* 20.56* 2 5.1*
Firm size 2 0.27 2.5
Corporate entrepreneurship H9 0.05 0.01 0.01
Table II. Notes: N ¼ 54; estimated coefficients are standardized coefficients; NW ¼ networking width;
Estimated coefficients in ND ¼ networking depth; * coefficients are significant at p ¼ 0.05, ** estimated coefficients are
path analysis significant at p ¼ 0.10
 related to better firm performance (corporate entrepreneurship £ networking width Strategic SME
outside SME network (b ¼ 0:26, p , 0:1). The increase in adjusted R 2 was from 0.34 networks
(model without interaction terms) to 0.41 when including the mentioned interaction
term in the model.

Discussion
The article’s objective was to develop and empirically test a framework on how firm
449
size can be an important point of departure to firm behavior and performance in SME
networks. As Figure 2 illustrates, the framework received some support, both expected
and unexpected, since a significant relationship between firm size and firm
performance was found. Aware of obvious study limitations (such as data coverage
limited to a two-year period), we next turn to the subsequent discussion.
The arguments presented in the framework were mostly generated from
suggestions in prior research pointing to larger firms as valuable for holding SME
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networks together, explicitly expressed by labels such as “dragons” or “hub-firms” (cf.

Nilsson and Nilsson, 1992; Varamäki and Vesalainen, 2003). In general, smaller firms
have naturally fewer resources than larger firms (Alvarez and Barney, 2001; Koh and
Venkataraman, 1991), making it hard to act as the network building and maintenance
vehicles larger firms often seem to be in these contexts. It was argued that, due to the
same reasons why larger firms may be important for a whole strategic network, they
might prosper from them. Therefore, firm performance implications were proposed to
come from firm dispositions via firm behaviour. However, the findings were mixed
since firm size was both directly (not hypothesized) and indirectly related (partly via
the process proposed in the framework) to firm performance. Although larger firms
networked more, the relations between firm behavior and firm outcomes were not as
expected, possibly due to unidentified variables that may better explain the process of
how larger firms prosper in SME networks than from a key transformation through
corporate entrepreneurship, as posited here. Schumpeter (1940) argued long ago that
larger firms possess superior advantages for actions and outcomes compared to

Figure 2.
Summarized results on
how firm size matters for
firms in strategic SME
networks
 JSBED smaller ones. The larger amount of resources to commit to R&D mentioned by
12,3 Schumpeter may be critical when in SME networks. In fact, the interviews revealed
that distinctives such as “project competence, more resources, and more R&D capacity
(found among larger firms) may explain the direct relationship between firm size and
firm performance. Many smaller firms could only cooperate with larger firms in some
projects because of these reasons. A rather illustrative statement was:
450 We [a smaller firm] do not have the competence or the contacts to enter that foreign market
without this firm [talking about a larger firm]. Therefore, we need this firm to do it. In fact, I
do not see any possibility of accomplishing something like that with another firm of our size
. . . of course they [the other firm] may benefit more than we do . . . but anything is better than
nothing.
Therefore, the process is not yet fully captured as explained in the framework. The
larger resource bases held by these firms seem to be enough for a direct relationship
and improvements in firm performance.
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This study also provides empirical evidence of the fact that aspects of inter-firm
networking in the SME network (i.e. depth as operationalized as hours spent on
business development issues) are related to corporate entrepreneurship, while aspects
of networking outside the SME network are not. These findings might be explained by
the divergent types of actors included in the two classifications of networks. The SME
network is characterized by membership firms with common goals and
interdependencies. Outcomes on corporate entrepreneurship from networking with
firms in this context might be more predictable based upon these prerequisites. When
going outside the SME network a wide array of actors are identified, ranging from
customers to pure competitors. If using embeddedness theoretical arguments from
Dacin et al. (1999) or Granovetter (1985), the quality of the actors in the network
linkages that the studied firms have built outside the SME network might be very
divergent. Furthermore, they are more likely to be based on exchange and economic
transactions of an arm-length character. Interpreting the results at hand, networking
with some of those actors might greatly affect corporate entrepreneurship, but not
when networking with others. Thus, the different individual qualities of the actors
included in this type of network classification may make the effects of networking on
corporate entrepreneurship hard to predict. Networking outside the near allied SME
network partners (who are likely to have similar goals and individual attributes and
thus better qualifications for predictions) to implement corporate entrepreneurship is
possible, but researchers should be aware of the individual value (i.e. how much they
are able to contribute to corporate entrepreneurship) of the actors used. Therefore, this
study lends support to an important underlying proposition for this kind of research;
namely that organizational effects from some types of networks are easier to predict
than others.
The findings extend this line of reasoning when considering performance
implications from inter-organizational networks and corporate entrepreneurship. The
findings do not support that participating in SME networks provides favorable
structural and environmental conditions for getting high pay-offs from corporate
entrepreneurship in terms of firm performance by itself when analyzing direct effects.
Instead, the findings suggest networking width (number of networking partners)
outside the SME network to be an important interaction term for performance
implications from pursuing corporate entrepreneurship. Therefore, this study reports
 that networks might not be uniform in their value supply to a firm and some aspects Strategic SME
may only create value under certain conditions (i.e. behaviors). Therefore, research networks
should be directed towards understanding how these mechanisms work.
Besides finding trust to be related to corporate entrepreneurship, this construct was
associated to networking behavior inside the SME network. However, the remaining
hypothesized relations, including trust, could not be supported. The fact that the firm
characterized with high levels of trust for cooperative partners will be less likely to 451
experience drawbacks from exposures to potential losses or harm derived from actions
taken by its partners in a situation of mutual dependence and uncertainty (Madhok,
1995) did not seem to guide firms in this context to use networking outside the SME
network to a lesser degree. Rather, firms that showed higher trust in their partners in
the SME network utilized more firms in networking matters outside the SME network.
If the interviews indicate anything, it may be that trust can be better understood as
part of the culture of a firm:
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I think that we [the firm] rely on, and have confidence in cooperative partners in general, not
just to those in the network [talking about the SME network] . . . it is something that is ever
present in a cooperation . . . it is like you are as a person maybe . . . we are open and do not
expect the worst until the opposite is shown.
Based on this premise, a firm that develops trust in one context may also do so in
others.

Concluding remarks
This research contributes to the insufficient knowledge about effects of firm size in
strategic SME networks by an empirical test of a framework where larger firms are
suggested to possess certain advantages for behavior and outcomes compared to their
smaller counterparts. Specifically, the study shows how firm size can foster
networking in different network environments (inside and outside the strategic SME
network) that may in turn lead to outcome divergences. As such, the work here
supports prior research positing larger firms as valuable for holding firms in strategic
SME networks together. However, it also extends the proposition in prior work by
highlighting a framework where larger firms improve performance simultaneously as
they bind firms together in these networks.

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