The problem of embeddedness revisited: Collaboration and market types

Embeddedness has been touted as a framework for knowledge exchange and innovation, and thus as an important precondition for high-level performance. Embeddedness of economic action in social relations improves access to resources, but over-embeddedness impedes performance. However, until now the association between embeddedness and performance in different markets has been neglected. This paper challenges the predominant view of embeddedness and over-embeddedness as absolute and mutually exclusive conditions. Through regression analyses of novel data from a project-based industry, the paper tests the association between embeddedness and economic performance in different markets, finding a positive association in the domestic market, but a negative association in foreign markets. This divergence in performance is caused in part by selection bias in the access to foreign markets, and in part by accumulation of localized knowledge.

► Costs and benefits of embeddedness depend on the market in which performance is measured.
► Positive effect of embeddedness in one type of market is not necessarily transferrable to other market types.
► Embeddedness enhances development of specialized abilities through knowledge transfer.
► Over-embeddedness results in network imposed blindness.