SAM ADVANCED MANAGEMENT JOURNAL

Capability Building and Structural Holes Under Environmental Hostility in China

Yi Liu, Wengian Li, Mike W. Peng, and Craig D. Macaulay

DOI:

Citation: Liu, Y., Li, W., Peng, M. W., & Macaulay, C.D. (2023). Capability building and structural holes under environmental hostility in China. SAM Advanced Management Journal, 88(2),13-33.

Abstract

To reconcile the controversy around the relationship between structural holes and firm capabilities, this study draws on social network and knowledge-based theories to explore (1) the joint effects of structural holes and either technological or market knowledge exchange on innovation and marketing capabilities, and (2) the contingent role of environmental hostility. The findings, from a hierarchical regression analysis on the data collected from 233 high-tech service outsourcing firms in China, show that firms can improve their innovation and marketing capabilities by occupying structural holes and simultaneously exchanging technological or market knowledge with other network contacts. Different dimensions of environmental hostility (competitive intensity and enforcement inefficiency) are also found to play different roles in shaping the efficiency of firms’ embedded network in building their capabilities. Overall, this study links firms’ internal capabilities with external networks and external environmental hostility, providing both theoretical and managerial insights into how firms can benefit from their embedded network when confronted with environmental hostility.

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