What is an economic network?
An economic network is a combination of individuals, groups or countries that interact for the benefit of the community as a whole. The primary objective of the group in an economic network is to strengthen its position in a market.
Key points to remember
- An economic network is a combination of individuals, groups or countries that pool their resources and competitive advantages for the benefit of each other.
- Common types of economic networks are joint ventures between two or more companies or partnerships between companies.
- The advantages of an economical network are access to a larger pool of talented labor and cost savings.
- The downside of an economic network is that it can lead to an imbalance of power between the larger and smaller members.
Understanding economic networks
Economic networks use all the competitive advantages and available resources of each member to increase the production and wealth of the group as a whole. The composition of these networks may vary. In some economic networks, membership may be static (where members do not change), while in others, the network may be dynamic. In these cases, the networks are constantly changing, as more members leave or are added. Networking activities can include a number of things including recruitment, investigation, knowledge and resource sharing.
Economic networks can take different forms. They can include groups of individuals, companies or nations sharing a common goal. Common types of economic networks can take the form of joint ventures between two or more companies, partnerships between companies (especially in different countries) or even groups of companies that form a network with a common bond and an end goal.
Advantages and disadvantages of economic networks
As with any other network, there are certain advantages and disadvantages of being part of an economical network. Some of the benefits include a larger labor pool and cost savings. When two or more people or groups share resources, they can share talents at all levels and their costs can be reduced as well.
On top of that there is knowledge sharing, so what one member may lack in knowledge another member may be able to report on their expertise. For example, a junior mining company may not be aware of certain local laws or regulations if it undertakes an exploration study in a new geographic area and, as a result, may experience certain problems. However, if he partners with one or more (larger) companies, even local ones, he will be able to benefit from their knowledge in land development, thus avoiding any future problems.
But with any network, there are downsides to being part of a larger group. In some cases, the contribution of one member may be greater than that of others, and there may be a struggle for dominance, leading to an imbalance of power.
Examples of economic networks
A chamber of commerce is an example of an economic network. It is a group of businessmen who promote and protect the interests of its members. Although the group is not actively involved in creating and enacting laws or regulations, it can be effective in influencing those in power through its lobbying efforts.
Another example of an economic network is the Group of Seven (G-7), made up of most of the world’s largest and most advanced economies: Canada, France, Germany, Italy, Japan, United Kingdom and United States. . Together, these nations account for almost half of the world’s gross domestic product (GDP) based on nominal values. As a whole, the group meets at the summit once a year; each member country hosts a summit once every seven years. The annual summits bring together heads of government, where they discuss economic policies and initiatives, and any key events that may affect the global economy.