How Firms Capitalize on Social Assets
Chapter 4: Turning Public into Private: How Geographically Bound Social Capital Amplifies Entrepreneurs’ Network for Innovation
The approach taken in this chapter is to illustrate how social capital impacts on firm’s innovation. The basic argument here is that two approaches to social capital – that is the individual approach and the structural approach – can be identified, and that they both can be used to explain firm’s innovation. It is well-known that entrepreneurs access resources and knowledge for innovation from external sources including users, suppliers, competitors, universities and so on (Rosenkopf and Nerkar, 2001). Innovations most often require the simultaneous use of different skills and knowledge which may not be available within the firm boundaries (Rosenberg, 1982). The early Schumpeterian idea of the solitary entrepreneur producing innovations has been overtaken by representations of multiple actors working together on iterative processes of trial and error (Freeman and Soete, 1997; Schumpeter, 1942/1987; Shan et al., 1994; von Hippel, 1988). As Van de Ven (1986: 591) argues, ‘while the invention or conception of innovative ideas may be an individual activity, innovation (inventing and implementing new ideas) is a collective achievement’. This argument is in line with the open innovation paradigm that states that openness fosters the introduction of new products by combining the efforts and resources of a large and varied pool of individuals with access to heterogeneous and complementary knowledge. Previous research shows that entrepreneurs use social capital to access resources and knowledge (Baron and Markman, 2003; Stam and Elfring, 2008), and capitalize on social ties to obtain bank loans (Uzzi, 1997), private equity (Shane and Cable, 2002) or market...
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