Too much love in the neighborhood can hurt: how an excess of intensity and trust in relationships may produce negative effects on firms

Abstract

This study aims to provide a better understanding of the effect of social networks on innovation through the analysis of territorial agglomerations of firms. Critical voices argue that the same mechanisms that form the basis of efficient, continuous improvements of clustered firms can also be considered as limitations. We suggest that the impact of social capital decreases beyond a certain point of development. In fact, the effect of social interactions and trust on firm value creation can be described as an inverted U-shaped curve. The study is based on a sample of 154 firms in the Valencia region of Spain. Implications of the study have relevant prescriptions for regional planners and individual entrepreneurs.

From incubation to maturity inside parks: the evolution of local knowledge networks

“…It is in the growth period when firms can benefit most from the local network. Previous studies have also observed the nonlinear effect of local networks on innovation and other performance measures, similar to the one observed in this research (Mcfadyen and Cannella, 2004;Molina-Morales and Martínez-Fernández, 2009). …”

“…Following Gulati (1995), firms repeating interactions with other co-located firms tend to develop trust and this induces firms to behave loyally, therefore reducing the mutual fear that others will act opportunistically. Firms tend to reinforce their local relationships with frequent visits to and meetings with other firms, or informal encounters, and with personal proximity, which increases the willingness of firms to share knowledge (Molina-Morales and Martínez-Fernández, 2009). In this environment, the opportunism risk is reduced, firms tend to find more opportunities and time for knowledge transfer and there is a feeling of reliability and positive expectations about future relations (Levin and Cross, 2004;Phelps et al, 2012).…”

“…Local relationships, while providing a great deal of knowledge, tend to be redundant, time consuming, and dilute the focus on other external sources of knowledge which could be important for the firm (Burt, 1992;Hansen, 1999). As a consequence, increasing the strength and number of local links may have an increasingly positive effect up to a point, after which it can become neutral or even negative (Molina-Morales and Martínez-Fernández, 2009;Uzzi, 1996).…”

“…Firms with significant experience do not depend as much on the knowledge and perspectives of local firms in the park, so establishing relationships with local exporters does not help to improve their innovative capacity. Moreover, they can establish relationships with external agents that provide new sources of knowledge and reduce the lock-in risk (McEvily and Zaheer, 1999;Molina-Morales and Martínez-Fernández, 2009). Taking into account these arguments, we can propose that:…”

The impact of cluster connectedness on firm innovation: R&D effort and outcomes in the textile industry

“…Firstly, the increasing relevance of the internal diversity between firms in the cluster (Giuliani, 2005;Boshma and Ter Wal, 2007), and secondly, the indirect, non-linear effects of dense internal ties which can alter key features of the cluster's characteristics (Giuliani and Bell, 2005;Waxell and Malmberg, 2007;Molina-Morales and Martínez-Fernández, 2009). …”