Embedded ties and the acquisition of competitive advantage
| Pages | 105-121 |
| Published date | 18 January 2008 |
| Date | 18 January 2008 |
| DOI | https://doi.org/10.1108/14691930810845830 |
| Author | Heng‐Chiang Huang,Chia‐Wen Chang |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
Embedded ties and the
acquisition of competitive
advantage
Heng-Chiang Huang and Chia-Wen Chang
Department of International Business, National Taiwan University,
Taipei, Taiwan
Abstract
Purpose – Drawing on embeddednesstheory, the purpose of this paper is to develop a comprehensive
model that explains the incremental innovation process in the supplier-manufacturer relationship.
Design/methodology/approach – Utilizing the partial least squared (PLS) technique, this study
examines the incremental innovation process through the theoretical lens of the embeddedness
perspective.
Findings – The overall picture emerging from this study indicates that establishing an embedded tie
between a manufacturer and a primary supplier enables the creation of informal coordination
mechanisms, including trust, joint problem-solving, and commitment. These coordination mechanisms
safeguard the transfer of knowledge and lead the partners to joint action. Such joint action provides an
interactive forum for developing innovation capabilities that allow firms to enhance their incremental
innovation performance.
Research limitations/implications – From an academic perspective, this study is the first to
examine the innovation process theoretically through the embeddedness perspective.
Practical implications – The evidence reported here is consistent with the finding that relational
embeddedness plays a strong role in predicting better incremental innovation. In addition to engaging
in their own trial-and-error experimentation to develop innovation capabilities, firms learn about
innovation capabilities vicariously through embedded ties with primary exchange partners.
Originality/value – In essence, these results provide valuable insights for managers who wish to
draw on knowledge from external sources in their innovation activities. Whereas previous studies
have shown how a firm’s incremental innovation is influenced by its internal resources, this paper
illustrates that relational embeddedness also represents an important source of incremental
innovation.
Keywords Trust, Problem solving,Innovation
Paper type Research paper
Introduction
The role of innovation as a crucial driving force in economic development is widely
acknowledged. Within the business setting, innovation is often considered a vital source
of strategic change, by means of which a firm generates various positive outcomes
including a sustained competitive advantage (Salavou, 2004). This is especially true for
incremental (as opposed to radical) innovation, which is vital both to increasing a firm’s
market share and to survival in the industry (Banbury and Mitchell, 1995), and leverages
a firm’s existing resources and capabilities (Leonard, 1998). Given the increasing
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
The authors would like to thank Dr Brian Bloch for his comprehensive editing of the English
version of this article.
Embedded ties
and competitive
advantage
105
Journal of Intellectual Capital
Vol. 9 No. 1, 2008
pp. 105-121
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930810845830
importance of innovation as a major competitive weapon for many organizations
(Porter, 1990), decades of research in a wide range of disciplines, including economics,
marketing, and organization behavior, have centered on a fundamental question: what
are the drivers of innovation (Chandrashekaran et al., 1999)?
Historically, firms have organized research and development (R&D) internally and
relied on outside contract research only for relatively simple functions or products
(Mowery, 1983). The acceleration of R&D efforts and the development of internal
innovative capabilities are no longer sufficient to cope with the increasing cost, speed,
and complexity of technological developments. In recent decades, there has been
unprecedented growth in corporate partnering and an increasing reliance on var ious
forms of external collaboration (Hagedoorn and Schakenraad, 1992; Gulati, 1995). A
growing body of literature, focusing on different industrial sectors and both large and
small firms, regards collaborative practices as a viable method of knowledg e creation
and transfer (Powell et al., 1996). Thus, innovation generation has increasingly become
recognized as an outcome of the relationship between a firm and outside entities (Roy
et al., 2004).
Recently, knowledge-sharing with suppliers has received increasing research
attention (Dyer and Singh, 1998; Hult et al., 2004). Manufacturers have discovered the
managerial, technological, and financial benefits that may accrue as a result of close
ties with suppliers (Ellram, 1990). Scholars also generally agree that a substantial part
of the innovation process occurs between buyers and sellers in the supply chain.
Accordingly, a large body of strategy-level research on buyer-seller interaction and
innovation outcomes has emerged (Hakansson, 1987; Lundvall, 1985; Athaide et al.,
1996; Roy et al., 2004). Despite this body of work, there has been a dearth of research
focusing on the incremental innovation generation process in supply chains. The
research to date has been primarily of a conceptual or qualitative nature (Wagner and
Buko, 2005). In view of the increasing importance of close ties with suppliers, and
considering the predominantly prescriptive nature of the research in this area and the
lack of empirical research, it seems quite clear that research on this phen omenon
should be expanded. The broad objective of the paper, therefore, is to expand this
stream of research by empirically examining the incremental innovation process
within the supply chain.
Our analytical approach to the study of the manufacturer-supplier relationship uses
embeddedness theory, which has its conceptual roots in sociology (Granovetter, 1985).
Conventional theories of alliances and networks use formal governance arrangements
such as contracts, hostages, or joint equity agreements to explain the safeguards that
promote knowledge and resource transfers between firms (Dyer and Singh, 1998). By
contrast, embeddedness theory explains how informal mechanisms of trust and joint
problem-solving arise from close ties and facilitate resource transfers between actors
(Uzzi, 1996, 1997). Therefore, this study investigates the incremental innovati on
process through the theoretical lens of the embeddedness perspective. We argue that
an embedded tie between a manufacturer and the primary supplier provides a
foundation of trust, joint problem-solving and commitment mechanisms. These
mechanisms enable joint action between partners to facilitate incremental innovation.
For practical reasons (i.e. data collection), we focus on the manufacturer side in a
dyadic manufacturer-supplier relationship and examine variables that either
correspond to that side, or that the manufacturer could legitimately explain.
JIC
9,1
106
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