How do business groups’ small world networks effect diversification, innovation, and internationalization?

Small world networks which demonstrate better group cohesiveness have attracted much theoretical attention in enhancing performance and creativity in strategic management. Yet, empirical studies of the benefits that can accrue to business groups’ strategic or economic outcomes remain scarce in the business group literature. Conceptualizing the business group as an embedded group network, we investigate the previously untested role of a small world group structure on relationships with group (industrial) diversification, core firm innovation and its internationalization. We find all these have positive and significant impacts. Group diversification is also found to mediate the relationship between a small world group structure and a group’s degree of internationalization. However, a small world group structure does not directly relate to a group’s degree of internationalization. Drawing on embeddedness and social network perspectives, we find general support for the hypotheses that a small world group structure facilitates strategic and economic outcomes for groups and core firms by virtue of efficiencies in resources exchange in a way that extends the literature on business groups.