Social structure and competition in interfirm networks: The paradox of embeddedness
Brian Uzzi's paper is an empirical paper that, in many ways, can be seen as providing empirical support for and refining the essential embeddedness thesis made by Granovetter (1985) in Economic action and social structure: The Problem of embeddedness. Although Granovetter suggested that social ties could provide "embeddedness" of market interactions that could provide a sociological way to understand market interactions, Uzzi suggested that Granovetter's account was too abstract in that it, "lacks its own concrete account of how social relations affect economic exchange" (p. 35). Uzzi argues thats attempts to explain cooperative social arrangement within markets (e.g., Japanese manufacturing or knitwear) using agency theory, prisoners dilemmas, and transaction costs, still rely on opportunism that seems a poor and undersocialized explanation.
To answer these, Uzzi provides ethnographic evidence from a series of New york City women's better-dress firms (essentially a midscale market of dresswear). Because the apparel industry is highly competitive, has low startup costs, and thousands of shops, Uzzi argues that this environment would be seen as unlikely to have strong social ties and argues that it is a conservative test for an embeddedness theory. Uzzi interviewed the CEOs of the 23 organizations that operated in a variety of spaces within the network of firms in the industry that included manufacturers, a trucking company, contractors of several types, designers, and a converter.
Uzzi found that ties could be characterized as either arms-length or market ties and as embedded ties.
He found that most ties between firms were arms-length (i.e., they were greater in frequency) but they were of much lesser significant than the closer, "special", embedded ties. Uzzi argued that embedded ties were shown to have three main components:
- Trust: Which gave firms more flexibility (i.e., someone could pay later), access to resources, and enriched opportunities.
- Fine-grained information transfer: Which helped firms plan and organize more effectively by increasing the opportunity for coordination.
- Joint problem-solving arrangements: Which included routines associated with adjustment and coordination that, despite economists predictions, were more efficient than market-based mechanisms of coordination.
Much of Uzzi's article is a subsequent listing of a long series of propositions about embeddedness that tries to lay out the conditions under which embeddedness would be expected. He ends with a large (40+ items) diagram showing the antecedents, components mentioned above), and effects of embeddedness at the firm level and at the network level.