The Effect of Economic and Social Embeddedness of Firms

This monograph studies the variation in performance of firms from the ‘embeddedness’ perspective. In three chapters, we independently investigate how the embedded reality and the context - which includes a firm’s value net, stakeholders, and other socio-economic factors - do affect its profit potential. The first chapter deals with the issue of measuring profit potential of firms in economic networks. In this chapter, we develop an index called ‘nodal power’ and study how inter-firm dependencies among firms in the embedded structure affect their profit potential. The next chapter focuses on how change in structural characteristics and/or relational content affects firms’ economic performance. Especially, we investigate how strong relationships contribute to value appropriation. In the third chapter, we present a case survey on CSR actions, internalization, and competitive advantage to show why and how some firms gain from CSR actions while others do not. This monograph should help strategy scholars and practitioners to appreciate how a firm’s socio-economic embeddedness and the nature of interactions therein affect its economic performance.