We explore how the classic dilemma between exploiting and safeguarding strategic knowledge influences network change. We focus on the considerations faced by firms as they accumulate valuable strategic knowledge. The possession of such knowledge creates opportunities to exchange for other network resources such as complementary knowledge, but also raises the risk of unwanted diffusion to competitors through the network. We demonstrate that firms seek for balance in this tension by dissolving ties that threaten unwanted leakage to competitors and, conditional on replacing risky ties with new ones, forming relationships to new partners that bring other valued resources. These additions and deletions, in turn, affect the evolution of ego network structure. Firms’ networks evolve toward greater closure as both the experience and the threat of unwanted leakage increases, but move towards greater openness as they add ties to partners with desirable characteristics. After accounting for selection and endogeneity effects in the termination and establishment of ties, we find strong support for these ideas in a longitudinal study of a German board interlock network. To capture strategic knowledge accumulation, we track firms’ experience in Eastern Europe from immediately after the sudden fall of communism in 1990 until 2003.
While research has studied the impact of domestic and host market competition on foreign location choice, it has not distinguished between the effects of the location of rivals on the decision to enter a new market or deepen commitment to an existing market through repeated entry. We address these issues in a study of the entry patterns of firms from France, Germany, and the U.K. into the transition economies of Eastern Europe. We find that the choice to enter new vs. established markets differs depending on competitive conditions in the host and domestic markets, and that these effects depend on the market share dominance of the focal firm and on opportunities to learn vicariously from experienced firms located nearby in the domestic market. Our study highlights how the location of rivals in different markets affects the sequencing of foreign expansion.
While networks are one of the key manifestations of organizational embeddedness, scholars have typically overlooked the reality that networks themselves are embedded within a larger institutional context. We address this lacuna by exploring the implications of institutional boundary spanning through network ties. We propose that, when organizations are exposed to multiple institutional contexts by maintaining network ties across institutional boundaries, they are able to benefit by engaging in institutional arbitrage. We outline various network strategies that firms use to manage the demands of multiple institutions and take advantage of the differences among them. Our main contributions build on three key ideas: one, that the same network position for an organization may be interpreted as a different network role in different institutional contexts; two, that certain network positions may either substitute or complement the institutional arrangements within a given setting and thereby generate more or less value for the organization; and three, that recognition of these differences provides the networked organization with the opportunity to profit from arbitrage across institutional contexts. In this manner, we use organizational network strategies to help integrate two of the most important domains of research in organizational scholarship.