Innovation and network: The impact of initial conditions on interfirm network formation of entrepreneurial firms

Empirical observations on the use of interfirm ties seem to guide managers in two directions. On the one hand, external ties are important and beneficial to innovations (as suggested in Deeds and Hill, 1996; Powell, Koput, Smith-Doerr, 1996). On the other hand, interfirm relationships may constrain a firm's innovativeness (as argued in Uzzi, 1996; Christensen, 1997). Much research effort has been expended to explain why interfirm ties or alliances engender different effects for different firms. However, the paradox of how and when networks facilitate and constrain entrepreneurial activities, such as novel new product innovation, has not been fully uncovered. To address this issue, we study the impact of initial product innovation conditions on the interfirm networking strategy of entrepreneurial firms by investigating the following framing questions: (1) What is the effect of initial knowledge status on a firm's actions in external relationship formation? (2) What is the effect of a firm's current engagement in interfirm ties on its future interfirm tie formation? (3) What is the impact of a firm's partnering activities on the effectiveness of external innovation knowledge acquisition? Building on the literature, this study proposes a model that suggests that there is a significant relationship between technological knowledge acquisition and that the initial conditions of product innovation, and this relationship is moderated by the patterns of network formation. Using survey approach, the research gathers information about network formation and interfirm knowledge acquisition in the small and medium sized enterprises from biotechnology and IC design industries. Partial correlation and multivariate regression are used to analyze the data and test the hypotheses.