Dynamic Profits Sharing Mechanism for a High-tech Virtual Enterprise

Song Liu

Abstract


To establish a High-tech Virtual Enterprise (HTVE) is an effective method for a High-tech enterprise to quickly
respond to market opportunity and disperse risks. However, most partners readily incline to reduce their
innovation efforts for worrying about lose resulted from unpredictable risks. Thus, it is imperative to design a
practical profits sharing mechanism to stimulate partners’ effort by timely compensating their potential loss. A
quantitative model was firstly established to examine how some factors such as risk preference, core competency
and cost etc. can comprehensively affect the effort degree of a partner. Based on this analysis, a formula to
calculate the desired profits sharing proportion of each partner are provided. Considering the changes of
uncertainties will make the original profits sharing tactics unreasonable, the paper subsequently provides a
method to monitor the conflict degree of profits sharing and tactics to modify profits sharing tactics dynamically
according to the actual cost and risks assumed by partners in different stage. The dynamic profits sharing
mechanism can motivate partners’ efforts more effectively than traditional mechanism can.

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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