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Private rules in global networks: hedging against risks

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Abstract

The objective of this paper is to examine how companies hedge against risk in global business networks. Risk is defined as the probability of an event occurring multiplied by its business impact. Recent events, such as the horse meat scandal have propelled network risks to the top of the business agenda. Companies operating in highly-competitive environments, such as in the grocery retail business, are finally held accountable for most disruptions that happen anywhere in the network, and hence companies need to interact not only with their direct business partners, but also with companies that operate at the other ‘end’ of a network or operate in even more remote business networks.
Drawing on an empirical investigation of how German companies operating in food retail use ‘private rules’ to hedge against risks, we identify a pattern of practices that aim at minimizing risks inherent in business networks. The paper proposes a process-model of risk hedging practices in global networks that improves our understanding of how companies hedge against risks.