The Structure of Intra-group Ties: Innovation in Taiwanese Business Groups

Business groups are a network form of multi-business firm that play central economic and technological roles in many emerging economies. We draw from the technology studies literature, complemented by concepts from studies of organizational networks, to investigate how equity, director, and operating ties between firms within groups shape their innovation opportunities. Technology studies suggest that such ties create both opportunities and constraints that influence innovative activity by affiliates and, in aggregate, by a group as a whole – opportunities that arise from access to information, people, money, and other resources, but also constraints that arise from entrenched relationships among different actors. The network literature, in turn, suggests that centrality and density of ties between firms within a group will shape the benefits and constraints. We find that the overall density and individual centrality of the three types of ties affects affiliate and group innovativeness among about 2,000 firms within 263 business groups in Taiwan between 1982 and 2000. Groups that offer affiliates focused access to financial resources and operating knowledge, coupled with autonomy from intra-group competition and strategic interference, often generate fertile opportunities for innovative activity by some of their members. The results also offer implications for multi-business firm innovativeness.