INNOVATION BY TAIWANESE BUSINESS GROUPS, 1981-2000: THE IMPACT OF STRATEGIC SCOPE AND MARKET DEVELOPMENT ON LOCAL SEARCH ARISING FROM INTRA-GROUP BUYER-SUPPLIER TIES

Abstract: Business groups are important sources of innovation in emerging economies, but there is substantial heterogeneity in the amount of innovative activity by groups, both across groups and over time. Variation in the density of intra-group buyer-supplier ties that are common linkages among group affiliates may help explain the heterogeneity: Such ties create benefits for group innovativeness by offering resource recombination opportunities, but also may constrain group innovativeness by creating an emphasis on local search. No research has examined how buyer-supplier ties affect group innovativeness, whether directly or conditional on factors that influence when local search will impose particularly strong constraints on group innovativeness and when any constraints will be less important. We draw on evolutionary economic theory to study how internal group structure and external market context affect the local search constraints of intra-group buyer-supplier ties. First, we argue that greater strategic scope of a group’s senior leadership structure will relax the local search constraints that closely-linked intra-group operations create. Second, we argue that increased market development of the institutional environment will increase the opportunity costs of local search. Our empirical contribution lies in demonstrating that strategic scope and market development affect the innovative impact of intra-group buyer-supplier ties through the local search mechanism, thereby increasing our understanding o