International Journal of Management (IJM)

Volume 10, Issue 6, Nov- Dec 2019, pp. 623-632, Article ID: IJM_10_06_060
Available online at https://iaeme.com/Home/issue/IJM?Volume=10&Issue=6
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
DOI: https://doi.org/10.17605/OSF.IO/MNA52

© IAEME Publication Scopus Indexed

NETWORKING AMONG FEDERATIONS OF

MICROENTERPRISES
Vineet Prabha
Department of School of Management Studies, Graphic Era Hill University,
Dehradun, Uttarakhand, India 248002

Abstract
The struggles of micro and small businesses to expand in today's complicated
and volatile economy are well-documented. The need to further investigation into the
mechanisms of small and microbusinesses' endogenous development is pressing. This
article uses the context of the modern information-driven economy to investigate the
connection between the embeddedness of knowledge networks and the dynamic
capacities of tiny and micro companies, focusing on environmental generosity as the
controlling variable. We have 260 surveys from micro and small businesses that we
used for our empirical study on structural equation modeling. Knowledge network
embedding has a positive impact on the flexible capacity of micro and small
businesses, and the results show that structural and relational embeddedness are
important drivers of this capability, while environmental munificence is important in
regulating this effect. The findings of this study will aid both the growth of small and
micro businesses and the formulation of enabling policies.
Key words: Dynamic, economic environment, micro-enterprises, growth mechanism,
structural equation, positive regulatory
Cite this Article: Vineet Prabha, Networking Among Federations of
Microenterprises, International Journal of Management (IJM), 2019, 10(6), pp. 623-
632.
https://iaeme.com/Home/issue/IJM?Volume=10&Issue=6

1. INTRODUCTION
The new ecosystem of "little and beautiful" businesses is displaying a trend of
profitability [1] as social division of labor and production fragmentation continue to increase.
Many countries in the developing world rely heavily on small and micro enterprises (SMEs)
to create jobs, boost economic growth, and spur innovation because of the crucial role SMEs
play in these areas [2,3,4]. But there are inherent drawbacks, such as a dearth of materials, a

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 Networking Among Federations of Microenterprises

limited body of knowledge, a scarcity of skilled workers, and a high price tag. There are a lot
of obstacles in the way of the growth of small and micro businesses right now. The lack of
skill, vision, innovation capacity, resource integration ability, and other factors stems from the
underlying challenges of a weak operating basis and finance difficulties. Consequently, its
high failure rate and short lifespan contribute to the high failure rate of small and medium-
sized enterprises [5]. Because of this, many individuals acknowledge the significance of
addressing external policy assistance for small and micro firms; nonetheless, enterprises
would be better served by focusing on developing an in-house capacity to translate knowledge
into flexibility in a given setting.
Increased environmental uncertainty [7] and a shorter life cycle for products,
technologies, and businesses [6] are all consequences of the ever-quickening pace at which
knowledge and technology are updated today. As the benefits brought by varied resources are
no longer sustainable, it is necessary to develop market-sensitive thinking ability, integrating
resources ability, and versatility, that is, dynamic ability. Environmental unpredictability,
organizational social capital, social networks, learning within the organization, resources
within the organization, entrepreneurial spirit, and leadership style are all shown to be
prevariables of dynamic capacities in previous research [8]. In fact, in order to build their
flexibility and adapt to the needs of a changing environment, organizations are placing a
greater emphasis on acquiring understanding through knowledge network embedding as well
as developing new knowledge with their network partners [9]. For reasons of size, resources,
and capacity, small and micro organizations are advised to embed in alliances and operational
networks, where they may gain universal knowledge and close the knowledge gaps with other
businesses while maintaining competitive advantages [10].
The literature on startups, incubators, and SMEs and MSMEs investigates the meaning
of dynamic capacities and corroborates their favorable impacts on competitiveness and
performance [4, 11]. The government has recognized the importance of high-quality SME
development, and academic studies have focused on the competitiveness and growth of SMEs
over the long-term [12]. Research on dynamic capacity has so far concentrated on high-tech,
Internet, and industrial organizations. It would seem that tiny and micro businesses have little
to do with the problem of dynamic capabilities [13,14]. According to Prahalad and Hamel's
[15] thesis, businesses' dynamic skills can only be built up through time. Thus, questions
remain about the meaning of SMEs' dynamic capabilities [16] and whether or not SMEs and
micro-enterprises can develop such capabilities.
In light of this, we propose the following research topics and develop the conceptual
framework of "knowledge network embeddedness-dynamic capacities" for SMEs with
environmental generosity as a moderating component. To what extent do dynamic capacities
of SMEs and knowledge networks have underlying meanings and dimensions? When it comes
to dynamic capacities, how do their dimensions relate to the embeddedness of knowledge
networks? How does nature's abundance control this procedure? To help businesses get the
external information they need to grow their dynamic capacities and as an outline for creating
incentive support programs, we start with these questions. We also analyze the influence of

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 Vineet Prabha

environmental generosity on regulation and the function of knowledge embedded in networks

of small and medium-sized enterprises (SMEs).
2. SMALL AND MICRO ENTERPRISES
Conceptual Framework: The World Bank classifies businesses as "micro" or "small" if they
have fewer than 50 workers and annual revenues of less than $10 million. Enterprises in this
country have distinct classifications from those in other nations due to the country's size and
population. We define the SME as businesses with less than RMB 20 million in operating
revenue and less than 200 employees, in accordance with the National Bureau of Statistics'
"Notice on Printing and Providing the Standards for the The classification of Small as well as
Medium-Sized Enterprises" (Gongxinbulianqi [2011] No. 300).
Dynamics of Capabilities: What makes a company dynamic is its capacity to build, tweak,
integrate, and rebuild its own resources and those of its partners. After then, numerous experts
provided their own perspectives on the dynamic capacities of businesses. Winter, Eisenhardt,
and Martin, as well as Chinese scholar Jiao Hao, are among the most prominent. In his review
of the literature on dynamic capacities, Yan [17] distinguished between a "beautiful
understanding" and a "plain understanding" of the term. It is simple to muddle up Huamei's
comprehension with other ideas, and the connotation is too all-encompassing to lose its
illuminating importance.
The nave view, first and foremost, recognizes the dynamic capacity as a normal
organizational capability. In contrast, Teece [16] raised doubts about the widespread
acceptance of dynamic capabilities as 2012 business norms. This is particularly true for small
and micro firms, which may lack the necessary organizational and technological redundancy
to systematically examine possibilities on a regular basis. Dynamic capacities may be broken
down into two groups, abstract management and organization processes and concrete
strategies and organizational processes, as described by Feng and Wei [18].
This article draws on a wide range of sources to argue that an organization's "dynamic
capabilities" are its awareness of and responsiveness to changing opportunities and threats, as
well as its capacity to build, integrate, and reconstruct its own resources and those of its
external partners. Market-focused perception, absorption, social network relationship,
integration, organizational flexibility, innovation and transformation, learning and utilization,
and so on are all examples of what the existing literature considers to be dynamic capabilities
[19, 20, 21, 22, and 23]. This article categorizes the dynamic capabilities into chance
perception abilities, flexibility in organization capabilities, or resource integration capabilities
based on a study of the aforementioned literature and the characteristics of small and micro
firms.
Knowledge Networks Structure and Function: A corporation serves as a node in a
knowledge network, which is a system made up of a group of nodes and the links between
them [24]. The embeddedness of a network of knowledge is broken down into structural
integration and relational integration based on the insights of Granovetter [25]. Tasi found
that the absorption capacity of new information and the creativity and performance of

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 Networking Among Federations of Microenterprises

business units are impacted by network structure, connection, and location [26]. By
examining the features of the four phases of information acquisition (search, recognition,
reception, and invention), Li et al. conducted an empirical analysis of the influence of
relational anchoring and structural anchoring on the efficiency of knowledge acquisition [27].
Embeddedness traits of the connection are used to describe the character of the relationship of
communication between the company and its network participants, and it is characterized by
mutual trust, sharing of data, and joint solving issues. Structural integration features in overall
network design described the position of the network nodes, which are defined by system
scale, network importance, and network place difference.
Environmental Concerns: The term "environmental munificence" [28] describes a situation
in which an organization may easily find all of the resources it needs without exerting undue
effort. Companies can get what they need from the environment more easily and at a lower
cost if environmental munificence is high; conversely, companies will have a harder time and
pay more for getting what they need from outside sources if environmental munificence is
low. The first aim succedaneous indicators of environmental benevolence are industrial
growth percentage, sales growth, price and cost distinction, and total employment. As a result,
the challenge that businesses face while trying to get resources from the bigger picture is
given increased attention.
Addressing Knowledge Gaps: After the 1980s, academics started looking into the
connection between social networks and social resources, as well as how businesses use social
networks to their advantage. There has been a shift from a binary partnership between
businesses and external organizations to a complex, interconnected network [29]. By sharing,
receiving, and combining information, members of a network may more easily close any gaps
in their own knowledge [30]. And it helps businesses strengthen their core competencies [31,
32], which may provide possibilities for small and micro businesses to survive [33]. The
knowledge-based research perspective holds that "dynamic capabilities come from
organizational learning" [34, 35] while the evolutionary economics perspective emphasizes
the synergy and coevolution between the organization and the environment. The favorable
impact of knowledge network embedding on the adaptive capacities of small and micro
companies is confirmed by the fact that collecting information from outside the organization
has become an essential approach for SMEs to compensate for their own limitations.
Structural embeddedness primarily investigates the correlation between the location of
the study target firm in the network and its performance, with an emphasis on the structure of
the network and the quality of social relationships between network nodes. Businesses at the
hub of a network are better positioned to engage in mutually beneficial interactions with their
peers and drive the network forward via increased communication, collaboration, and trade. If
a company control more of the network's key information channels and has easier access to
the necessary technology and knowledge than its competitors, it will have a lower cost of
searching for information, which will in turn improve the company's ability to perceive
opportunities. According to resource theory, firms located at the hub of the network enjoy
greater advantages in terms of resource coordination, company relationships, and bargaining
power; they are also better able to direct creative resources toward strategic endeavors [38,

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 Vineet Prabha

39]. This structural embeddedness has a positive effect on the organization's adaptability
because it allows for control and coordination of the trajectory and direction of new
knowledge generated in the network. In order to govern and integrate its resources, a business
has to be located as near to the network's core as possible. This allows the business to more
quickly receive resources and information, notably the expertise needed for technological
innovation.
Embeddedness in a relationship refers to the extent to which a transaction or
engagement between two parties is based on reasonable anticipation of mutual benefit in the
future. Trust, open communication, and working together to find solutions are all implied.
Tacit information exchange relies on the mutual trust between businesses. Building trusting
relationships between businesses may help them share valuable information and expertise. As
trust between organizations grows, teams are better able to work together to find solutions to
issues, which benefits both parties. The speed, precision, and breadth of information
transmission during cooperative efforts may all benefit from increased information sharing
across businesses. It's a good environment for businesses to put an emphasis on market
dynamics, take chances, and establish themselves as market leaders. The faster an
organization can acquire more effective resources and steer clear of excessive repetitive and
invalid procedures, the stronger the basis of trust between the firm and other companies. At
the same time, businesses will increase their openness and collaboration agreements with
external parties in order to get more diverse resources. It's possible that the enterprise's
existing resources and those it has acquired from the outside may work together
synergistically. This allows the business to see how effectively the resources are being
coordinated and used.
When the location of the network is not dominant, small and micro enterprises often
take the initiative to strengthen their relationships with their partners in order to deepen
collaboration, strive to produce and bolster the lock-in effect, and strengthen their own
position in the value network, all in an effort to mitigate the effects of the uncertain external
environment and boost their chances of growth.
Environmental tolerance and Moderation: The term "environmental tolerance" (or
"environmental resiliency") is used to describe how easy or difficult it is for a corporation to
get the resources it need from its surrounding business environment [28]. It seems to reason
that a more welcoming atmosphere would provide a healthier setting for businesses. This is
crucial throughout the establishment and expansion phases for small and micro businesses.
Initial policy backing may bring about simplified access, expanded market prospects, and
reduced expenses for businesses. This quick turnaround may be beneficial for small and micro
businesses since it creates breathing space for them, but it will also increase businesses'
excitement for relying on government policies. The cost of resource acquisition is low and the
strain on the firm to survive is minimal, according to studies, when environmental resources
are plentiful and cheap to access. The organization's core competence will become rigid, but
this is counterproductive because it breeds inertia at both the structural and cultural levels,
making businesses less likely to draw on the internet for information.

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 Networking Among Federations of Microenterprises

Motivated and Effective Management: This paper analyzes the current state of small and
micro enterprises in my country and then applies theory and empirical research to draw
conclusions about the relationship between these businesses' knowledge networks'
embeddedness, their dynamic capabilities, and their environmental tolerance. Determine how
the dynamic capacities of small and micro businesses are created and how the embeddedness
of knowledge networks affects this process. To develop a "small and sophisticated, small and
beautiful" business model and ensure the long-term viability of micro and small businesses in
the modern era of the knowledge economy, it is essential to tap into the collective wisdom of
these businesses' knowledge networks.
Embedding knowledge networks has become an essential tool for micro and small
businesses to have access to information and expertise at a cheap cost and enhance their
adaptability. It also demonstrates that micro- and small-sized businesses may establish
reliable working partnerships with larger businesses. Keeping an eye on the market and being
able to react quickly to changes in the market requires a high level of market sensitivity, both
of which may be maintained by gaining access to more direct information and tacit
knowledge.
Occupying a hub location in a network may help mitigate the negative effects of
information asymmetry, make it easier for SMEs to keep their communication channels
running smoothly, and get access to timely market and technical data. It also helps them make
the most of what they already have by realizing more efficient resource allocation and
sharing.
Actually, it is challenging for micro and small businesses to be at the center of the
knowledge network; as a result, they focus more on the strength of the connection with the
cooperative enterprise, boosting the amount of partners, keeping the density and thoroughness
of cooperation between both parties, building trust, and compensating for their lack of
position in the network structure. Allocating, choosing, and restructuring resources are all
components of resource integration, which Zahra et al. feel adds a great deal of complexity to
the process. The sophisticated resource integration capabilities of the SME cannot be boosted
by trust relationships, knowledge exchange, or shared issue solving. However, there is no
strong positive correlation between the two because small and micro enterprises are unable to
regulate and coordinate the flow of novel information generated inside the network due to
their limited capacity to occupy structural holes.
The connection between small and micro businesses' embeddedness in knowledge
networks and their dynamic capacities is moderated positively by environmental generosity.
The impact of embeddedness in knowledge networks on dynamic capacities is greater when
environmental abundance is higher. Existing research uses indicators including government
development goals, financial policies, industrial growth space, and market support for
resources to calculate environmental tolerance. Both regional economic growth and cultural
norms are intrinsically linked to these elements. The business climate is usually more mature,
the municipality has a strong feeling of service for smaller and micro firms, and the
atmosphere is more accepting in locations with a more established economy and a greater

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 Vineet Prabha

degree of openness. Local small and micro enterprises have a higher crisis awareness,
competition understanding, and growth awareness than their counterparts in other regions, and
they place greater emphasis on being a part of the knowledge network and learning from its
members to improve their resilience as well as competitiveness. Consistent with the findings
from the preceding interviews, it follows that the importance of embedding knowledge
networks in the dynamic capabilities of micro and small-scale businesses has grown as
environmental generosity has grown.
Suggestions for Dealing with External Environment: It is now a matter of life and death
for small and micro firms to develop their own dynamic capacities in the face of both the
external environment and the internal challenge of a lack of resources. The article draws some
useful insights from empirical research that may be put into practice by micro and small
business owners and managers.
Knowledge networks should be actively embedded in small and micro firms, with
special focus paid to the establishment of network links. Especially in the face of the effects
of external crises, competition today is not a rivalry between individual firms, much alone
tiny and micro enterprises. Maintaining opportunity perception, organizational flexibility, and
resource integration has been shown to benefit small and micro firms (SMEs) that strive for a
favorable network location and keep up solid network ties. Embedding and developing social
networks might be challenging for small and micro firms, but they should nevertheless link
with the main enterprises and place themselves as centrally as feasible. Furthermore, it is
suggested that micro and small businesses practice stakeholder management. If they want to
keep their networks running smoothly for a reasonable price, they'll need to categorize
stakeholders based on the nature of their interest relationships, rank them in terms of
importance, and employ a variety of strategies for keeping in touch with each other. These
strategies include getting everyone involved in the project, developing a shared vocabulary
and problem-solving framework, building trust, and learning from one another.
To better the climate for small and micro firms, the government should implement a mix
of assistance and incentives. There is a wide disparity in economic growth throughout our
country's huge landscape. Many different local government policies aimed at regulating and
encouraging the growth of small and micro enterprises have been developed in response to
specific local circumstances. According to the findings of the interviews conducted at the
beginning of this study, small and micro firms need protective measures to ensure their
continued existence in their communities, but they cannot be supported alone. The ensuing
empirical findings are consistent with this theory as well. The "knowledge network
embeddedness-dynamic capacities" link is positively regulated by environmental generosity.
First, increased environmental generosity objectively improves the business climate for
startups and other small businesses. External knowledge and resources have a more noticeable
compensating impact on small and micro firms with limited means. The reliance of micro and
small businesses on external funding has grown. Second, there is a direct and long-lasting
connection between the level of regional economic growth, government direction, and
regional culture, and the establishment of environmental tolerance and entrepreneurial

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 Networking Among Federations of Microenterprises

initiative. There is a high level of environmental tolerance and a strong government

commitment to serving businesses in economically developed regions.
3. CONCLUSION
As a result, there is a greater emphasis on marketization in this sector, and businesses
are better able to compete in this environment. The competitiveness of businesses that are
born and raised in the current economic climate depends increasingly on their ability to
acquire knowledge and skills via network embedding. One way the government helps small
and micro businesses is by integrating regional resources and reducing the effects of resource
constraints and external crises via taxes, information technology, and other regulations.
However, it is more vital that the region's business conditions be enhanced, the development
of a strong business culture be bolstered, and a favorable business climate be formed. Small
and microbusiness owners benefit from the surrounding economy's interactions because they
help them develop a strategic pattern and competitive awareness, and they prevent the
stagnation of innovation. Companies that have seriously investigated the shift from factor-
driven to creativity-driven should be rewarded by the government for their exceptional
capabilities in areas such as technological innovation, conservation of energy, emission
reduction, and the absorption of new workers.

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