The Search-transfer Problem: The Curvilinear Effect Of Weak Ties, Structural Holes And Network Diversity On Firm Innovation

With increasing pace of technological development and shortening product life cycles, interorganizational network play critical role in firm's innovation. Economic globalization offers opportunities for Chinese domestic firm to integrate into the global innovation networks. How to access resources embedded in the networks and enhance innovation capability is the key issue for domestic firms to upgrade in the global value chain and acquire competitive advantage. How to configure the social structure and geographic distribution of firm's innovation network is an important research question with practical implications. However, previous studies have yielded conflicting results regarding to the effect of weak ties, structural holes and network diversity on firm innovation. Recently, a few literatures indicate that researcher needs to consider the curvilinear effect of network structure on firm innovation.This research examines how the structure of network influences firm innovation. Specifically, the research examines four research questions:(1) Whether weak ties, structural holes and network diversity have curvilinear effect on firm innovation; (2) What is the underlying mechanism that explains why weak ties, structural holes and network diversity has curvilinear effect on firm innovation; (3) How geographic propinquity influences the search benefit and transfer problem of weak ties, structural holes and network diversity; (4) How absorptive capacity moderates the relationship between the novelty of knowledge and firm innovation.Based on previous theoretical and empirical research, we developed a theoretical model to explain the ways by which weak ties, structural holes and network diversity influences firm innovation. Through an analysis of the data gathered from 226 manufacturing firms in China, we tested our hypotheses and arrived the following several results.(1) Structural holes and network diversity has an inverse-U shaped curvilinear effect on firm innovation. The innovation benefits firm gets from structural holes and network diversity has an optimal level. Below the optimal level, firm innovation increases with the increasing of the number of structural holes and the extent of network diversity in firm's ego network; above the optimal level, firm innovation will decrease with the increasing of the number of structural holes and the extent of network diversity. Weak ties have a negative impact on firm innovation. The weaker the tie strength of firm with important partners is, the lower the firm innovation. (2) Structural holes and network diversity influences firm innovation through two mediating mechanisms. Although structural holes and network diversity has search benefit as to provide novel knowledge, they induce knowledge transfer problem. Both search and transfer benefit has a positive impact on firm innovation. To maximize innovation performance, firm has to balance between search benefit and transfer problem. The moderate level of structural holes and network diversity is the condition for firm to achieve this balance, which results in the curvilinear effect of structural holes and network diversity on firm innovation. The weak ties of firm with important partners have negative impact on both search and transfer benefit. This results in negative effect of weak ties on firm innovation.(3) The research considers how geographic propinquity changes the effect of network on knowledge access and transfer. The results indicate that although geographic propinquity reduces the transfer problems of structural holes and network diversity, it also constrains the search benefits of them. This means that, acquiring knowledge from proximate partners is relative easy but the novelty of knowledge is relative low and thus depressing the potential for innovation, and vice versa.(4) Although interorganizational network provide access to external knowledge, they do not guarantee effective knowledge detection, transfer, and assimilation. The results indicate that absorptive capacity positively moderates the relationship between the novelty of knowledge and firm innovation. This means that, although interorganizational network plays important role in firm innovation, it is not simply a means to compensate for the lack of internal skills.The findings from this research deepen our understanding regarding to how the structure of network influences firm innovation. Specifically, the research has the following several contributions.(1) This research examined the curvilinear effect of weak ties, structural holes and network diversity on firm innovation. The results indicated that structural holes and network diversity has a reverse-U shaped curvilinear effect on firm innovation. This research finding adds empirical evidence for the curvilinear effect of the structure of network on firm innovation.(2) This research developed a mediating model to explain the way by which weak ties, structural holes and network diversity influences firm innovation. This mediating model not only helps to explain why structural holes and network diversity has the curvilinear effect on firm innovation, but also contributes to resolve the conflicting results with regard to structural holes and network closure, network diversity and network similarity.(3) This research examined how geographic propinquity influences the search benefit and transfer problem of weak ties, structural holes and network diversity, which deepened our understanding about the interplay between social and geographic structure.