Where Can Capabilities Come From? Network Ties and Capability Acquisition in Business Groups

While strategy researchers have devoted considerable attention to the role of firm-specific capabilities in the pursuit of competitive advantage, less attention has been directed at how firms obtain these capabilities from outside a firm’s boundaries. In this study, we examine how firms ’ multiplex network ties in business groups represent one important source of capability acquisition. Our focus allows us to go beyond the traditional focus on network structure and offer a novel contingency model that specifies how different types of network ties (e.g. buyer-supplier, equity, and director ties), individually and in complementary combination, will differentially affect the process of R&D capability acquisition. We also offer an original analysis of how other aspects of network structure (i.e. network density) in business groups affect the efficacy of network ties on R&D capability. Empirically, we provide an original empirical contribution to the capabilities literature by utilizing a stochastic frontier estimation to rigorously measure firm capabilities, and we demonstrate the value of this approach using longitudinal data on business groups in emerging economies. We close by discussing the implications of our supportive results for future research on firm capabilities, organizational networks, and business groups