Inside and Outside: Network Advantages and R&D among Business Group Affiliates

Abstract

Strategy scholars have shown that business groups stimulate research and development (R&D) among their affiliates through internal resource sharing and mobilization. However, it remains largely unclear why some business group affiliates outperform others in R&D. I adopt a network perspective and examine how network connections within the business group and network connections at the local market exert impact on affiliates’ R&D. I center my investigation around R&D initiation, R&D spending, and R&D failure. First, I propose that closeness centrality and brokerage (in both intragroup network and local market network) are network advantages that have a positive effect on R&D initiation. Second, equity ties within the business group and direct business ties at the local market are positively related to R&D spending. Last, I explain why business group affiliates may not turn R&D effort into innovation outputs. Theoretical, empirical, and practical implications are discussed.