An investigation of the negatives effects of social capital on innovative performance of firms in cluster networks

Abstract

Firms are facing great challenges in the intensive, rapidly developing competitive market. Thus, firms have begun searching for new means to innovate in order to grow, compete, or simply survive. Using inter-firm relationships as a source of innovative ideas, firms gain access to valuable information, knowledge and resources that can be embedded for commercial gain. Nonetheless, the potential positive effects of these relationships can become adverse when firms are too deeply embedded in a network. Most research to date focuses almost exclusively on the positive effects of social capital as the most powerful factor in fostering innovation without paying due attention to the negative effects. There is an urgent need to develop a more comprehensive and precise understanding of the dark side of social capital. Therefore, the aim of this thesis is to investigate the negative effects of social capital on innovative performance in the context of cluster networks. With consideration of the socio-territorial context of clusters, the four dimensional social capital model (focusing on structural, relational, cognitive and proximity-related dimensions) will be used to offer an insight into the nature of such relationships and open the ‘black box’ of the dark side of social capital. Furthermore, this study also investigates the interrelationship between the four dimensions of social capital, and the extent to which proximity defines social capital. The study was validated by the interviews of 23 firm owners from various industries that operate within cluster networks, and of two representatives of relevant institutions in Thailand. The outcomes of the study reveal that over-embeddedness in a cluster network can constrain a firm’s effective decision-making capacity and restrict its access to new information and knowledge. The cost of maintaining intra-cluster relationships is greater than the benefit, thus impeding the innovative performance of firms in a cluster. In contrast to the dominant view put forward in the literature surrounding social capital, the results of the study confirm an inverted u-shaped relationship between social capital and innovative performance. The results of this study contribute to the ongoing debate surrounding the relationship between social capital and innovation, as well as exploring the as-yet under-investigated field of social capital. From a managerial perspective, though, the results of the study present the negative effects of social capital, the intention is to advocate for a shift from the blinkered ‘more-is-better’ approach towards a ‘too-much-can-hurt’ mentality. The results of the study offer practical value by providing guidance for practitioners and cluster policymakers on managing the negative effects of over-embeddedness in cluster networks.