Explaining the Underutilization of Business to Business E-Commerce in Geographically Defined Business Clusters: The Role of Social Capital

This paper focuses on the intersection of two important trends: 1) the growth of Internet based business-to-business electronic marketplaces that have proliferated in many different industries, largely built on hopes for large scale efficiencies in the area of transaction costs, and 2) the renewed interest on geographically defined business clusters in studies of economic growth and innovation. Juxtaposing these two topics, the basic argument is that a primary weakness of most B2B hubs is the dominance of efficiency-related services and the relative lack of social/relationship building services that are so important to the formation of stable business trading relationships. Conversely, evidence from successful geographically defined business clusters suggests that location and proximity facilitate the formation of social capital and interfirm relationships in many ways that do not require inter-organizational information systems. Thus, inter-organizational systems (like B2B hubs) are likely to be underused in geographically defined clusters. We conclude that successful collaborative e-commerce in geographical business clusters must recognize and complement the rich communications and pre-existing relationships that have served to enhance trust and cooperative behavior, rather than attempt be a substitute for such communication and relationships. An earlier version of this paper was presented at the research workshop on “The Ambivalent Relationship Between Social Capital and IT,” Vrije Universiteit Amsterdam, May 27-28, 2002.