The Role of Networking in the Company’s Growth Process

Abstract

Small and medium-sized enterprises (SMEs) that experience growth encounter various barriers in the business ecosystem. Government regulations, bureaucracy, hindered access to finance, and corruption are among the most common barriers that can significantly hinder the growth process or even destroy enterprises. SMEs are exposed to various factors of the business ecosystem. Developed and supportive business ecosystems help SMEs minimise such barriers or to signal them which choices and behaviours are generally accepted within society. In transition economies that are often characterised by weak institutional development, underdeveloped financial markets, and excessive bureaucracy, it takes SMEs longer to achieve growth resulting in higher transaction costs. To speed up the process of achieving growth and lower transaction costs when relying on external sources of finance, SMEs tend to use their own network of suppliers, large clients, family and friends, bank officers, accountants, lawyers, and business support organisations. If using such networks leads to no results, SMEs make other choices, though not necessary socially moral ones. This chapter aims to show that, when obtaining external sources of finance, SME owners and managers rely on advice from their own network and especially seek out those who can speed up administrative processes. To identify if there is a correlation between owners/managers’ network and leverage of the SME, a survey was conducted on 108 Croatian SMEs that had been operating for more than 12 months. The financial data of these SMEs was sourced from publicly available financial reports. The results of the research indicate the type of networking that enables enterprises (SMEs) to grow and develop faster. Furthermore, the chapter provides recommendations for further research in order to gain a better understanding of the impact of networking in the success of SMEs.