Obscure but important: examining the indirect effects of alliance networks in exploratory and exploitative innovation paradigms

Abstract

This study investigates how the alliance partners’ ego-network advantages, measured by the betweenness centrality, clustering coefficient and degree, affect focal firms’ ego-network advantages, innovation performance and the alliance stability. Under the exploitative innovation paradigm, alliance partners holding greater ego-network advantages would significantly improve focal firms’ ego-network advantages; Clustering coefficient and degree of alliance partners’ ego-network significantly improves focal firms’ innovation performance; However, they generate significant but mixing effect on the alliance stability. As innovation becomes more exploitation oriented, all of these effects weaken. Alliance partners’ ego-networks generate relatively weaker indirect effects on the focal firms as that of their own ego-networks. This suggests that the indirect network effects are not negligible. Our study suggests that alliance partners play a rather periphery role under exploratory innovation paradigm compared with that under the exploitative innovation paradigm. This is because the former requires more indigenous efforts to make breakthrough inventions. The results based on the counterfactual simulation process focus on the effect of key alliance partners’ ego-networks and reach generally similar conclusions, which confirms the robustness of this study. We discuss these findings and formulate policy implications at the end of this study.