FIRM’S PARTNERSHIP AND COMPETITIVE ADVANTAGE
Junsei Kado
3-6-6 Higashi-Nogawa,
Komae-city,
201-0002,
Tokyo, Japan
ABSTRACTThis study examines the effectiveness of the theory of structural embeddedness adopted topartner network analysis for studying how firm’s partner relationships contribute tocompetitive advantage. Two major ERP (Enterprise Resource Planning) package vendors
in Japan, which have significant partner relationships as one of their characteristics, areanalyzed as a comparative case study. First, their partnership networks are analyzed basedon the resource based view theory, then an analysis is added based on the structuralembeddedness theory which can complement shortfalls of the resource based view theory.
The conclusion of this study is as follows:
1) From the perspective of resource based view theory, an ERP package vendor that has
open relationships structure with its partners does not have the differentiation advantage
compared to an ERP package vendor that has close relationships structure with its partners
2) Otherwise, from the perspective of structural embeddedness theory, the former type
ERP package vendor has ‘Opportunity Advantage’ compared to the latter type ERP
package vendor.
That ‘Opportunity Advantage’, a capability to get more business opportunities, has been
not clearly examined in the conventional resource based view theory. However, byanalyzing partnership networks of the ERP package vendors in Japan based on the
structural embeddedness theory, this study makes the difference clear among the ERP
package vendors concerning ‘Opportunity Advantage’ capabilities.
Keywords: Resource Based View, Structural Embeddedness Theory, ERP Package
Vendor, Partnership Network, Partner Relationships

Introduction
This Paper argues how a firm’s partnership contributes to acquire a competitive advantage.
The aim of this paper is to insist the effectiveness of introducing a partner network view tothat argument. In this paper, Competitive advantage is used as a main cause of making amarket share difference among firms. There exists “sustainable competitive advantage”

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when the advantage in market share has sustained and the main cause of sustainable
competitive advantage is analyzed.
To argue competitive advantage of individual firms, it is effective to be based on the
Resource Based View (RBV) theory. Negoro (2005b) is one of advocators of thedeveloped RBV theory. Negoro (2005b) expanded RBV theory with two new concepts:
isolation mechanism and strategic values. But even the RVB, there’s some theoretical
lucks to analyze a firm and its partnership.
One of theoretical lucks of RBV is insufficient consideration regarding elements ofcompetitive advantage. In conventional RBV, “differentiation advantage” and “costadvantage” have been studied by many scholars, but other factors that bring competitive
advantage have not been less examined. For example, “Opportunity advantage”, an accessability to market and customers, has not been noticed. “Opportunity Advantage” means acondition that a firm obtains more business opportunities in a market. A firm’s partner
network that brings more business opportunities has a possibility of bringing in acompetitive advantage related to market share. Furthermore, “opportunity advantage” hasa possibility to be a trigger to cumulate resources that lead to differentiation. Thisadvantage varies according to a structure of partnership and choice of partners.
Searching opportunity in a market is conducted not only by sales activities of focal firm but
also by its business partners. In the case of focal firm, opportunity advantage is limited
simply by the firm’s size. But In the case of searching opportunities by business partners,
factors other than a firm’s size are supposed to affect competitive advantage. As a method
to investigate them, this paper complementarily introduce a theory of structuralembeddedness for analyzing partner network characteristics.
Attention to partner network
The theory of structural embeddedness is a typical perspective for studying partner
network. Gulati, who is one of advocates of structural embeddedness, exhibits “network
resources” concept to complement conventional competitive strategy theory. Network
resources are found in relationships of firms’ networks contrasting with individual firms’internal resources. Gulati argues that network resources contribute to produce resourcesthat gain inimitable values. The conceptual framework of network resources consists of
network membership, network structure, and tie modalities. With the network membership,
we focus on what player compose partner network. With network structure, we pay
attention to characteristics of structural pattern of firms’ relationships. For example, it
examines whether a network is more redundant or less redundant. With the tie modalities,
we examine the characteristics of the way of relationships among firms.

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Research Methodology
Subject of ResearchThis paper conducts a case study regarding ERP package vendors and its partners in Japan.
We choose SAP Japan which is a foreign capital ERP package vendor as a main target and
the GLOVIA business of Fujitsu which is a domestic package vendor as the object of acomparison.
Table 1 shows time series ERP market share in Japan.
Table 1. Time series ERP market share in Japan ( 1997 – 2003 )SAP Japan has been keeping top market share in Japan.
Assumptions of analysis
We assume that there doesn’t exist differentiation points that definitively affect to market
share on basic product functions between SAP Japan’s ERP product and the GLOVIA
business of Fujitsu. There are three reasons for this:(1) Many new firms have entered relatively easily to ERP package business. This leads to athought that the basic functions of ERP packages are not inimitable. Because the basic
functions of ERP packages have core functions based on constitutionally standardized
business processes like accounting.
(2) Most of ERP packages need to be customized with add-on development when they are
implemented to customer business. It is a rare case to be implemented as an ERP software
is. Customizing quality affects the competitiveness more than their functionality
differences. Customizing quality significantly depends on a partner’s ability .
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(Some Typos Revised)Firm’s Partnership and Competitive Advantage(3) On the assumptions (1) and (2), ERP package vendors are not supposed to be able tokeep high market share for many years. Of cause there are many factors that determine
market share like product price or reputation based on implementation achievements otherthan product functionality. However, this paper focus on contribution of partner networkout of these factors that determine market share. Therefore this paper doesn’t intend toverify that market share is determined by partner ability or network structure, but toindicate the possibility that partner network have a strong influence to market share.

Case Analysis
This paper focus on two elements - partner resources and partner network - to illuminate
how partner relationship contributes to competitive advantage. What has to be noticed isthat partner resources don’t indicate all the resources that partner have but resources thatcomplement business activities of a product vendor. This limitation is aimed to compare
the business systems of ERP package vendors.
First, resource isolation mechanism and strategic value are analyzed using the frameworkof Negoro (2006). Second, partner networks composed by package vendors and partners
are also examined using the three relationship characteristics – network membership,
network structure and tie modalities – advocated by Gulati (2000).
Figure 1 shows analysis framework based on these theories.

Figure 1. Analysis Framework

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Analysis of partner resources
Isolation Mechanism
The resources held by partners of SAP Japan to conduct ERP package business exist
outside SAP Japan. And partners are connected to SAP Japan through relatively loose
relationships of partner system and expectation of getting profit opportunity on business.
Therefore it is quite likely that partners use their resources for other package vendors or
utilize their resources to develop and sell their own ERP package products. That is to say,resources held by partners of SAP Japan are easy to convert to utilize for other ERP
package vendors and it is relatively easy to be converted. It is difficult to say that theirresources are inimitable. On the other hand, the resources held by partners of the GLOVIA
business of Fujitsu have close relationship with Fujitsu, and there’s few possibility that
their resources are transferred or converted. In the business system that ERP package
vendor and partner business that conduct complementary activities promote the whole ERP
package business, the GLOVIA business of Fujitsu whose partners cannot easily convert ortransfer their resources has more rigid isolation mechanism than SAP Japan whose partners
can convert or transfer their resources.
Strategic Value
ERP package implementation usually takes long time and need a large scale project team.
The loss of failure must be huge. It is supposed that customers take care of reducing that
uncertainty and this is one of the main evaluation points when they choose solution using
ERP package.
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In the case of SAP Japan, there exist highly capable and experienced partners. But on theother hand it depends on the partner’s capability whether the implementation success ornot. In other words, partner skills are varying and the contribution to reduction of
uncertainty on implementation fluctuate according to partner. The GLOVIA business of
Fujitsu that hold many stable resources inside their body is more capable of reducing
uncertainty. In fact, Fujitsu, a general computer manufacturer, hold a collective strengththat is produced from the synergy of Fujitsu group firms. With this strength, Fujitsu caneasily appeal to its customers of its capability of reducing uncertainty. But on the other
hand, it is appreciated the fact that there exist high ability holding partners for SAP Japan.
Therefore the strategic value is even for SAP Japan and the GLOVIA business of Fujitsu.
Summary of partner resources analysis
Table 2 shows a summary of analysis of partner resources.

Table 2. Summary of Partner Resources Analysis

Analysis of partnership continuity
The advantage of partner network does not directly bring opportunity advantage. Firms
gain opportunity advantage after maintaining the advantage partner network for someperiod. Therefore it is required to survey the partnership continuity before examining
partner networks itself.
Started point and ended point of partnership of each firm are surveyed to analyze
partnership continuity.
In general, the partnership continuity of SAP Japan’s partners is very high.
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In the case of the GLOVIA business of Fujitsu, its partner system started in April 2007 andits history is very short and the time is not enough to affect the partnership continuity. But
there are some long-time group firms of Fujitsu, these firms had relationship with Fujitsu
before the GLOVIA partnership. They are supposed to have been conducted GLOVIA
business continuously. As far as we could survey, the partnership continuity is high both in
SAP Japan and in the GLOVIA business of Fujitsu.
Analysis of Partner Network
In this section, an analysis based on structural embeddedness theory on partner network
consists of ERP package vendor and its partner firms are conducted.
Network membership
In the case of SAP Japan, most distinctive feature of its network membership is thepartnership with SIers that belong to customer firm group. Furthermore, SAP Japan has
many relationships with major computer vendors and major independent SIers. These
partners not only conduct implementation business passively but also conduct expanding
activities like cooperative development of industry specific templates or horizontal
deployment of their existing software assets in the same industry. Otherwise, in the case of
the GLOVIA business of Fujitsu, most of network members are distributors or SIers of
Fujitsu’s own group firms. It is not explicitly shown in the partner system of the GLOVIA
business of Fujitsu, Fujitsu has partnership in GLOVIA business with its subsidiaries andnon-GLOVIA related partner firms.
Judging from these facts above, SAP Japan’s network membership is supposed to havecomparative superiority because it has various types of members in partner network andvarious types of partnership and cooperation.
Network Structure
The network members of SAP Japan are supposed to affect its network structure.
The members - user firms, SIers that belong to customer business group, computer vendor
and consulting firms - hold their own business networks. SAP Japan acquires the access to
new customers through the networks of partners. These customers are difficult to accessfrom SAP Japan of itself. The business opportunities with new customer are increased to
combine with other firms that hold their own business networks. The business network
structure of SAP Japan brings opportunity advantage to SAP Japan.
In the case of the GLOVIA business of Fujitsu, most of its partners are its group firms. The
relationships between partners and customers are nearly equal to the relationships between
Fujitsu and the customers. Partners doesn’t have business network with customer
independently. In this case, access from Fujitsu is limited to the extent that Fujitsu and its
group firms can reach. It is limited to the existing customers of Fujitsu.

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We judge that the network structure of SAP Japan’s partner network is superior to the
GLOVIA business of Fujitsu because of its probability of access to more customers( opportunity advantage ).

Tie Modalities
When we examine tie modalities, we need to draw attention to structure and maintenanceof the partnership. Tie modalities is closely related to maintenance of partnership.
In the case of SAP Japan, partners are required relationship specific investments. This is
one of the factors that ties SAP Japan and partners. To be more specific, it is a participationin training courses provided by SAP Japan. According to a hearing from one of the partnersof SAP Japan, some million yen of investment par trainee is required. The investment
amount increase when multiple engineers are required to develop. This investment is sunkcost for partner firms. To collect this cost, partners prefer to continue business with SAP
Japan. Therefore the tie between SAP Japan and its partners are relatively strong, and it
also contributes to maintain partner network structure to some degree.
The GLOVIA business of Fujitsu, similar to SAP Japan, requires to take training courses tobecame a partner. This investment is sunk cost for partner firms. To collect this cost,
partners prefer to continue business with the GLOVIA business of Fujitsu. Therefore thetie between the GLOVIA business of Fujitsu and its partners are relatively strong, and it
also contribute to maintain partner network structure to some degree.
It is equal in tie modalities of 2 ERP vendor’s partner networks.
Summary of partner network analysis
Table 3 shows a summary of analysis of partner network.

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Table 3. Summary of Partner Network Analysis

Summary of case analysis
By analyzing partner relationship of ERP package vendors, the GLOVIA business of
Fujitsu is superior to SAP Japan in both isolation mechanism of resources and strategic
value of resources based on an analysis of resources held by partners. According to theperspective of conventional resource based view, under the assumption that basic functionsof each product has not significant difference, the GLOVIA business of Fujitsu might havebeen more successful in the market than SAP Japan. But against this expectation, SAP
Japan has a large market share in reality. On the other hand, the analysis focused on thepartner network, contrary to the result of analysis based on partner resources, we have aconclusion that SAP Japan is superior to the GLOIVA business of Fujitsu in partner
network. Not only the differentiation advantage of business system of ERP package
business, but also the opportunity advantage brought by partner network might havebrought greater success – market share – to SAP Japan.

Conclusion
Opportunity advantage and differentiation advantage
From the case analysis, we reached a result that the partner network of SAP Japan issuperior. But the superiority of resources held by partners are not necessarily recognized.
Presuming an opportunity advantage, it suggests that partners hold not only a mere
operational resources but also an essential resources that bring SAP Japan an opportunity
advantage.

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Based on the conventional resource based view perspective, the difference between SAP
Japan and the GLOVIA business of Fujitsu might be explained that it was caused from thehistorical context. In the other words, SAP Japan, as an independent company and newentry to the Japanese market, was necessary to newly build its partner network. But The
GLOVIA business of Fujitsu had already held partner network for selling computerequipments when they entered to ERP package business and this lead to the difference inholding and cumulating resources. Viewing from this uniqueness of the historical context,
it seems that the GLOVIA business of Fujitsu has an advantage in terms with cumulating
resources.
On the contrary, by introducing a structural embeddedness point of view, forming a partner
network is lead to not only gain mere operational resources for selling and implementing
ERP package but also gain new opportunity advantage through partner network.
In short, it is impossible to explicitly render an opportunity advantage brought by partners
by means of only examination of partner resources based on the conventional resource
based view. By complementary introducing the structural embeddedness perspective, did
this paper, we can make it clear the differences.

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