Social Capital, Structural Holes and the Formation of an Industry Network

Abstract

The formation of a network is determined by the opposition of two forces. The first is the reproduction of network structure as a general social resource for network members. The second is the alteration of network structure by entrepreneurs for their own benefit. The idea of reproduction is a conventional one in organizational sociology but has taken on increased importance due to the work of Bourdieu and Coleman. In contrast, Burt stresses the entrepreneurship of individual agents in exploiting structural holes that lie between constrained positions. Though complementary, the theories of social capital and structural holes have fundamentally different implications for network formation. This paper investigates these theories by examining empirically the formation of the interorganizational network among biotechnology firms. We propose that network structure determines the frequency with which a new biotechnology firm (or startup) establishes new relationships. Network structure indicates both where social capital is distributed in the industry and where opportunities for entrepreneurial action are located. The reproduction of network structure depends on how startups value social capital compared to these opportunities. The critical test is, consequently, whether new relationships reproduce or alter the inherited network structure. We find strong support for the power of social capital in reproducing the network over time.