Interfirm networks, social capital, and knowledge flow

Purpose – Researchers have long been interested in the process of how networking firms share knowledge, what mechanisms firms use to govern knowledge sharing, and what the consequences are for the sharing firms. The purpose of this paper is to attempt to answer these questions from a social network perspective. Design/methodology/approach – Qualitative method is employed to facilitate deeper understanding of soft variables and key relationships for discovering and mapping non‐formal business practices. The sampling strategy is based on relevance rather than representativeness; data analysis and theoretical analysis stresses an iterative process of theoretical sampling, comparing, and contrasting of samples to build theoretical categories. Findings – The principal findings highlight how social capital, especially trust‐based‐ties, develops in inter‐firm interaction process, accelerates knowledge flow, and acts as an informal governance mechanism between firms. Weak ties help firms to build initial relationships and strong ties help firms to acquire higher‐quality and fine‐grained knowledge. Research limitations/implications – The analysis rests on qualitative studies in a single industry. The paper trades generalizability for richness, thus potentially risking producing theories that are idiosyncratic and not generalizable to the entire population. Longitudinal studies with larger sample sizes are encouraged to develop more precise propositions or hypotheses for testing. Practical implications – The identification of the process through which social capital facilitates knowledge flow and consequently innovation enhances the understanding of firms' strategic behavior, and provides managers possible guidelines on how to accumulate social capital in interfirm dynamic interaction to gain competitive advantage. Originality/value – The paper delineates the strategic roles of social capital in facilitating knowledge flow between firms and further contributes to emerging literature by demonstrating the process of social capital development and its impact on innovation and performance.