Cohesive subgroup formation: Enabling and constraining effects of social capital in strategic technology alliance networks

In this paper we will examine the role of embeddedness and social capital in the process of cohesive subgroup formation in strategic technology alliance networks. More in particular, we will investigate the social mechanisms that enable and enforce cohesive subgroup formation. We will argue that the enabling effects of social capital in the beginning of the group formation process can turn into paralyzing effects as the block formation process progresses. Through the formation of subsequent ties, firms in social systems tend to rely heavily on their direct and indirect contacts in forming new partnerships. This so-called " local search " enables firms to create trustworthy and preferential relations. Over time, those relations tend to develop into strong ties, as firms rely on the same partners by replicating their existing ties. This enabling effect of social capital at the group level can, however, turn into a paralyzing effect as actors become locked-in, as they only rely on partners in their closed social system. Then searching for or switching to partners outside of the cohesive subgroup is hard to rationalize, in particular when trustworthy partners are already available in this system. The firms in cohesive subgroups tend to become more similar over time as a result of contagion and replication of their existing ties. This so-called phenomenon of overembeddedness induced by the paralyzing effects of social capital at the group level can lead to decreasing opportunities for learning and innovation for blockmembers involved.