The Role of Weak Ties in Diversification Strategy

Abstract

1. IntroductionThis study is an analysis of process of successful diversification from perspective of (Granovetter, 1973).Despite increasing pessimism about competitiveness of Japanese machinery industry, which has played a leading role in Japanese economic growth, there is growing interest in diversification into medical industry, which is seen as a next-generation source of growth. This study takes example of a firm that successfully diversified from automotive industry into medical equipment industry, and from perspective of ties, it observes process of how company succeeded in this diversification effort over a moderately long period.Ties can be classified into and (Granovetter, 1973). There are well-known analyses of effectiveness of strong ties in automotive industry. Strong ties between automobile manufacturers and their suppliers have contributed to competitive advantage of Japan's auto industry (Clark & Fujimoto, 1991; Fujimoto, 1997). At same time, effectiveness of weak ties in acquiring useful new information is also well known (Granovetter, 1974). This aspect is known as the strength of weak (Granovetter, 1973). Strong ties promote incremental innovation, such as quality improvements and finely tuned responses to delicate needs, while weak ties tend to promote radical innovation through new information and revolutionary ideas (Wakabayashi, 2009). Weak ties can thus be useful in diversification in that they bring about new information and raise potential for entry into new markets.According to prior research that analyzed relationship between ties and management performance, it is not enough for a firm to have only strong ties or only weak ties. Moreover, firms having a proper balance of both have best performance (Uzzi, 1996, 1997; Uzzi & Gillespie, 1999). These studies suggest that both strong and weak ties are necessary for diversified companies to generate good performance.However, little research has been done on how firms can form weak ties and leverage them in diversification process, as well as at what point do strong ties become necessary.2. MethodThe analytical method used in this study is a single case study that examines process of how a company achieved diversification and what kind of ties were formed in doing so. It has been pointed out that Granovetter's (1973) definitions of strong and weak ties are ambiguous and that there are some logical leaps on his theoretical development (Takahashi & Inamizu, 2014). This study refers to Granovetter (1973) in defining ties as being based on the amount of spent in relationships and engaged in the reciprocal services, with lots of time spent indicating strong ties and little time spent indicating weak ties.This study focuses on following two points. First, how did a company that had grown in automotive industry, where strong ties were prevalent, form weak ties?Second, were both weak ties and strong ties necessary for successful diversification? At what point did strong ties become necessary? How did strength and role of these ties change over time?The analysis in this study focuses on Tokai Buhin Kogyo Co. Ltd. (hereinafter, Tokai Buhin), a rare example of successful diversification among small- and medium-sized parts manufacturers. The firm was founded in Shizuoka Prefecture in 1947 as a manufacturer of screws and developed into a screw manufacturer for automobiles. However, company entered medical equipment industry in 2003 because it was concerned about having over-reliance on automobiles.Data for this analysis was gathered from industry publications and newspapers, as well as through interviews with Nobuyuki Morita, company's president, Mitsuteru Hirano, its factory director, and Katsunori Ueda, director of Pharma Valley Center, an organization that promotes medical industry in Shizuoka Prefecture. …