研究論文

The Network Structure View of Global Markets:
Theoretical Basis and Some Propositions
臼 井 哲 也USUI, Tetsuya(日本大学)(Nihon University)

Abstract
The purpose of this article is to present the importance of a network structure’s effects
on new market-based knowledge developments and acquisitions in global markets.
Network structure of markets refers to the overall pattern of relationships of actors
within which market is embedded. MNEs (participants or actors) are embedded inmarket networks of resources, information, and other flows. Typically, major
competitors and primary customers are the members of networks in national or regional
markets. In the discussion on a network structure view, ‘a locally dispersed network
structure of global market’ can be a favorable condition for new market-basedknowledge developments and acquisitions because a dense and closed local market
network can be itself seen as a distinct source of new knowledge in overall global
markets.

Keywords
global market, network structure, knowledge, resource, cluster

Introduction
The purpose of this article is to present the importance of network structure effects on
new market-based knowledge developments and acquisitions in global markets. In
recent years, scholars have focused on the issue of knowledge development in global
markets—not only in home or leading markets, but in developing or emerging markets,
as well. This issue arises when firms globalize and economic interdependence among
nations increase. In addition, emerging economies have gained a much larger presence
in global markets than was 10 years ago (e.g., reverse knowledge transfer). Despite
increasing interest in this issue that how MNE can gain the benefits by participating at
global markets, little is known about identifying the favorable external (or market)
conditions for new market-based knowledge development or its effect.
Throughout a summary of the academic arguments over the last two decades, two
research streams come out: the discussion on internal management effectiveness andexternal conditions.
The first area of interest stems from management issues pertaining to the- 87 -

international transfer of critical knowledge generated in both home and host countries(Kogut and Zander, 1993). This can be called a knowledge-management view. Because of
the difficulty of transferring knowledge grounded in the close ties within a regional
network, knowledge can be packaged and transferred at a cost, rather not seen as public
goods. Without organizational forms and management capabilities for international
knowledge transfer, as well as finding valuable resources in different parts of world,country-specific advantages (CSAs)and firm-specific advantage (FSAs) cannot be
exploited to leverage the competitiveness of firms at a global level.
The second stream can be seen as a knowledge-seeking view that focuses on identifying
favorable locational conditions for effective knowledge development; this explains why
the locations in different parts of the world bring certain aspects of competitiveness to afirm, the so-called location- or country-specific advantages (CSAs). This issue relateswith the question where to locate. Local opportunities, regulations, infrastructure, local
resource endorsements and access, and other local institutions are major sources of
CSAs. Not only the home country but also the host countries give significant effects on
new knowledge development today.
Previous studies have succeeded in revealing the mechanism through whichknowledge-seeking FDI takes place, and what internal management issues underlie
appropriate knowledge transfer and new knowledge development, which can result in
future FSAs around the globe. Unfortunately, little is known about identifying thefavorable external or market conditions of locations for new market-based knowledge
developments and acquisitions. Market-based knowledge (downstream activities)
includes, the capabilities for customer oriented product developments, brandmanagement,

customer

relationshipmanagement, effective promotion

management,

practices, andchannelsales

development

andforce automations, ischaracterized, on one hand, as less transferrable because of its location bound-ness(Rugman & Verbeke, 1992; 2004; Collinson & Rugman, 2008), which means the originalvalue will be more likely to stick to its location when local specific demand or
opportunities are involved in the process of knowledge development. On the other hand,
this can be seen as a source of competitive advantage because different market
conditions, including specific demand, distinct competitive landscape for specificproducts or services and the existence of world-leading customers, may lead to finding
distinctive knowledge to deploy to the global market presence (Craig & Douglas, 2000;
Zou & Cavusgil,2002).
This article focuses on the benefits of the favorable conditions in a network structure
for local markets as a part of an overall global market network. Previous studies have
simply assumed the degree of location heterogeneity in global markets to be a source ofcompetitive advantage; however they have not paid much attention to exploring the
network structure of interconnectedness of major actors in its national or regional
markets. By identifying the favorable conditions of network structure of markets, this- 88 -

study makes two contributions to the literature on this subject. First, it recognizes
theoretical basis and potential implications for the network structure view of global
markets in market-based knowledge developments and acquisitions. Second, the study’s
research design provides insights into the effects of network structure by developing
some important research propositions for future research agenda.

The General Location Effect on Knowledge Development
FDI and Location Effect
In the eclectic paradigm, early research works focused on the interaction between
CSAs and FSAs of firms, whether as individual firms or as a reflection of the strength of
the home country considered collectively (Rugman & Verbeke, 1992; Cantwell, 2009).
FSAs include a firm’s proprietary expertise or unique assets, patents and specifictechnologies developed primary at the parent company, while, on the other hand, CSAs
provide a firm with the benefits associated with locating certain activities in particularcountries. The research question in early years was “why should they exploit theseadvantages themselves, that is, by owning added value, rather than use theintermediate product market to license the right to do so to foreign-located firms?”(Dunning, 1998: 54). In summarizing these early works, it becomes clear that the major
knowledge in MNEs (FSAs) has been developed in the home country when the initial
FDI occurred. In general, the objective of FDI in the 1970s was the reduction of
production cost in the invested country and it has led to more aggressive
market-seeking FDI by transferring the home-based FSAs. However, in the 1990s, a
new perspective on FDI was introduced in order to describe MNE activities in thisperiod. Rugman and Verbeke (1992: 763) proposed two problems with internalization
theory from the perspective of strategic management. The first problem is theassumption that an MNE’s core FSAs normally originate in the parent company andthat its FSAs are in principle non-location bound. Second is the assumption that the
CSAs of host countries can only be used in a local and static sense. CSAs may contributeto the long-term development of new FSAs (or knowledge) that creates dynamic benefits
to the corporation as a whole. As MNEs globalize their activities, foreign subsidiaries
become insiders of the local market, able to access CSAs as well as local firms. New FSA
development in host countries became the strategic imperative necessary to improve an
MNE’s competitiveness on a global basis in the 1990s. When FSAs in the host country
have developed to respond to specific local opportunities, its FSAs may become
location-bound FSAs, which benefit a company only in a particular location and are lesstransferrable abroad (Rugman & Verbeke, 2003: 130).
Despite this negative aspect, because different types of subsidiaries may need to haveaccess to very different knowledge bundles from other affiliates and outside actors at
the locations, different locations bring opportunities to develop distinctive knowledge.

- 89 -

Dunning indicated that one of the main differences of FDI in the 1990s compared withthat of the 1970swas that the complementary foreign assets and capabilities sought by
MNEs wishing to add value to their core competitive advantages (which developed in
the home country) were increasingly knowledge facilitating, and a growing geographicaldispersion of knowledge-based assets and need of firms to harness such assets fromforeign locations were more important motives for FDI (Dunning, 1998: 61–62).
Today, differences between locations, including home and host or developed andemerging countries all have the potential to contribute to the new knowledge
developments in global competition. This describes the view that MNEs prefer to invest
in different parts of world in order to seek seeds of strategically useful FSAs (assets,knowledge, or resources) and actually develop them, although this does not describe theway to specify the favorable market conditions for the new knowledge developments.
Without identifying the favorable locational conditions firms can’t make accurate
decisions on where to invest.
Cluster as Location Effect
The concept of cluster may provide a key explanation for location effects that supports
effective knowledge development in the global arena. Access to local clusters has
become one of the recent motives for FDI and location strategies of MNEs may add totheir global competitive advantages. In this section, let the position take that thecluster view provides more insights for the purpose of identifying the favorable location
conditions of market-based knowledge developments, compared with the conventional
observations on location effects, which focused mainly on different national production
factors.
The studies on clusters focus on the knowledge developed through the interactions
among actors in certain geographic areas. This indicates that the static environmental
conditions themselves are not enough to explain the rate of innovation and knowledge
development; rather, the structure of dynamic relations among the actors who possess
complementary and differentiated resources need to add on to the analysis. A cluster isa geographically proximate group of interconnected companies and associatedinstitutions in a particular field, linked by commonalities and complementarities(Porter, 2000; Tallman, et al., 2004). In a cluster, close linkages with buyers, suppliers,and other institutions are important for efficiency and the rate of improvement andinnovation in the industry.
Porter (2000), who is a pioneer in this research field, indicates clusters’ three impacts
on a firm’s competitiveness: (1) increasing current productivity of constituent firms orindustries, (2) increasing the capacity of cluster participants for innovation andproductivity growth and (3) stimulating new business formation that supports
innovation and expands the cluster. The first impact is related to access to specialized
inputs, employees, technologies and information that can provide superior or lower- 90 -

costs and complementarities to the firm’s resource for cluster participants. The second
impact is most important for this article. Cluster participants offer and receive manypotential advantages in innovation and improvement compared to an isolated location
where there is no interaction with other members. Rivalry existing within a cluster
forces firms to develop dynamic capabilities (Teece et al., 1997) that support innovation(Niu, 2009).
There are several opportunities for innovation in a cluster. First, by concentrating
participants with buyers’ knowledge and relationships in a cluster, firms in a cluster
are more often able to clearly and rapidly perceive new buyer needs. Second,participants have more chances to gain an insight into evolving related and advanced
technologies than non-participants. Finally, complementarities involved in innovation
are easily achieved. Despite these benefits of participating in a cluster, one major
negative impact is the tendency for clusters not to support radical innovation. Porter
explained that the firm in the establishment cluster might suffer from greater barriers
to perceiving the need to change and from inertia against serving past relationshipsthat no longer contribute to competitive advantage.
While Porter discussed the cluster effect on both firms’ and national interests andcompetitiveness, based on the international business context, Enright (2000) identified
three models of a regional clustering (the development of multiple firms in the same orclosely related industries in the same locations). The first view is an independent modelthat sees clusters as a form of organic economic development, in which local firms
interact and then inject themselves into international markets, while the second is adependent model which posits that clusters as a region of their own can’t be generated
rely on attracting the facilities of foreign MNEs. In this second model, cluster
development is viewed as a policy tool to attract the investment of foreign MNEs into
the local market or industry. The bridging of these two opposite cluster models leads tothe third model, in which there is a great deal of interdependence between regional
clusters and the strategies of MNEs. The main benefits for MNEs derive from making
investments in local clusters with the objective of augmenting assets (Dunning, 1998),
as is described by cases in which the MNE invests to gain access to specific capabilities
present in a given location in order to enhance the assets that the corporation alreadypossesses (Enright, 2000: 118).
In order to construct the more specific geographically favorable conditions for effective
new knowledge development, seeing a cluster as a unit of analysis provides moreinsights for firms when they make decisions on their location choices, compared to theconventional discussion on location advantages. As Dunning noted, “the pull of thegeographical clustering and networking of related value-added activities will have an
increasing effect on the choice of location by MNEs” (1998: 52).Overall, the study ofclusters suggests that the structure of dynamic relations among actors in certain
geographical regions may be akey explanatory factor for the new knowledge- 91 -

developments. This assumption clearly differs from the previous discussion on location
choice for FDIs in international business studies. The discussion on a cluster focuses on
the structure of network of participants, not just static locational conditions.

The Network Structure View of Global Markets
In the discussion of local marketing environments, the standardization and adaptation
perspectives have been the dominant research streams in this field (Craig & Douglas,
2000; Solberg, 2000; Zou &Cavusgil, 2002), focusing on classifying and capitalizing on
national differences in competitive conditions such as customer needs, competitors’
resources and marketing infrastructure (including natural resources, service providers,
distribution and advertising agents). However, the central question of what are thefavorable external conditions that interactions among actors in a local market is focusedon new market-based knowledge development in overall global markets remains
unanswered.
The question to be answered here is what structure of network will be most effective
for new market-based knowledge developments and acquisitions in global markets. In
this section, let me propose a new way to look at global market structure by adapting
the major discussions from social network analysis. Network structure refers to theoverall pattern of relationships of actors within which market is embedded (Gulati et al.,
2000: 205). In the business literature, Kogut defines an economic network as thepattern of relationships among firms and institutions. He stated:In this definition, an
idealized market is a polar case of a network in which firms transact at spot prices andare fully connected in potential transactional relations but are disconnected throughtheir absence of cooperating agreements. He pointed out that few markets of this ideal
type exist; rather, most markets consist of sub-sets of firms and institutions that more
intensely interact with each on a long-term basis (Kogut & Walker, 2001). These
patterns of interactions encode the structural relationships that represent the networkand this type of network structure has benefits for firms (Kogut, 2000: 407).There are
two main benefits of a network structure that connected and disconnected respectively:

social capital and structural holes effects (Burt, 1992; Gulati, 1998; Lin, 2001).
Social Capital as Network Resource
Social capital represents the benefits that come from strong relationships amongactors within a network. In sociology, social capital is defined as a form of capitalpossessed by members of a social network or group (Coleman, 1988; Lin, 2001). It isdefined as the resources embedded in social networks accessed and used by actors fortheir actions (Lin, 2001:25). According to Lin (2001), there are two types of resources anindividual actor can gain access to and use: personal resources and social resources.
While personal resources possessed by an individual may include ownership of- 92 -

materials, social resources are accessed only through an individual’s social connections.
Burt (1992) defined social capital as a thing owned jointly by the parties to a
relationship so that no one actor has exclusive ownership rights to it. By forming andsustaining the particular network, participants are embedded in networks of resources,
information and other flows so that collective assets will be generated as social capital.
There are three favorable conditions needed to build a local social capital: (1) network
density, (2) strength of ties with members in the network and (3) closure. Density in thelinks or ties between members who are known to one another within a network may be
more conducive to oligopolistic coordination (Coleman, 1988; Gulati, 1998; Gulati et al.
2000). A higher degree of strength of ties in a network will enhance relationships amongactors and lead to similarities in the method of response, thereby adding value tocustomers. For the actors, it is easier to share ideas, such as a certain way to satisfy
customers in the main segment to reduce uncertainty in future marketing-related
investments. Closure network is another condition for social capital generation thatmaintains and enhances trust, norms, and authority among actors in a local network(Coleman, 1988). By being a member of the closed local network, individual actors may
accept the value of the resource because they wish to remain members of the group or
identify with the group and they are willing to accept the group’s value even if they do
not understand the resource’s intrinsic merits (Lin, 2001: 30).
In recent years, in the business research field, there has been a growing interest inunderstanding the influence of the social context and network structure in which firms
are embedded on their behavior and performance. In Kogut’s discussion on
supplier–auto manufacturer relationships, he posited that the network itself isknowledge because supplier–manufacturer relationships may involve more complex
rules governing the process through which innovations are collectively produced andshared. Although being a member of social group provides a firm with opportunities toaccess and use social capital developed by all members of the group, withdrawing fromthis social relationship dissolves these opportunities. In this sense, dense and closed
networks provide favorable conditions for the development and maintenance ofcollective capital in the group.
Firms in a closed and dense network tend to follow the same strategy simply byimitatingsucceeding

competitor’s

resource

bundles.

This

dynamic

viewoforganizational transformation has been supported with DiMaggio & Powell’s(1983) theconcept of isomorphism that is a constraining process that makes one unit in a
population to resemble other units that face the same set of environmental conditions.
Because networks of interconnectedness among actors can be important sources of
information for the participants (firms, competitors and customers in the marketing
context), the pattern of ties among them influences their strategy formation andperformance (Granovetter, 1985). It also diminishes uncertainty among actors (Gulati,1998). Gulati identified shared understanding among actors through strong and- 93 -

socializing ties as “relational embeddedness.” The main advantage for a firm of being amember of asocial network or group is gaining fine-grained information throughcohesive ties among actors.
In the discussion about how firms benefit from the network structure, we can further
develop the new view of the market-based knowledge-development process.
Market-based knowledge can be defined as the set of know-how that offers benefits toexisting and potential customers based on ideas and practices in the market that
includes the capabilities for customer oriented product developments, brandmanagement,

customer

relationshipmanagement,

channeldevelopment

andmanagement, effective promotion practices and sales force automations. Because firms
are cognitive enterprises, understanding how they process market information is a
critical condition for organizational learning; it is the process by which information istransformed into knowledge (Day,1994; Slater & Narver, 1994; Sinkula et al., 1997).
The concept of market orientation that attempts to learn from changes inenvironmental forces provides firms with better overall financial performance thanthose that are not market oriented (Day, 1994; Slater & Narver, 1994). For market
analysis and understanding firms’ competitive advantage, marketers need to apply bothcompetitor-centered assessments which are based on direct management comparison
with a few target competitors and customer-focused assessments which start withdetailed analyses of customer benefits and gain feedbacks from them (Day & Wensley,
1988; Day & Nedungadi, 1994). Product markets can be determined by dynamic
consensual knowledge structures that coordinated transactional relationships among
sellers, customers and competitors within market network(Lambkin & Day, 1989; Rosa
et al., 1999).
Rosa et al.(1999) represents the view to analyze product markets with socio-cognitive
approach. In this view, the existence of product markets can be described by the
network structure where the producers (include competitors) and consumers (orcustomers) bring product conceptual systems to bear on market interactions. Productmarkets are simply defined as socially constructed knowledge structures (Rosa et al.
1999; 64). Responding and adapting to customers and competitors are major sources of
information on market-based knowledge development. In international marketingstudies, this is referred to as local adaptation of a marketing plan and a process throughwhich firms respond effectively to local market conditions to enable to build competitive
positions there (Craig& Douglas, 2000; Solberg, 2000).
In this sense, market-based knowledge tends to be embedded within specifictransaction networks (Hunt & Morgan, 1996). The dynamic relations among actors who
possess complementary and differentiated resources add value on the location. Let’stake two examples to reconfirm this effect of dynamic relations among actors in the
network, one in automobile industry and another in retail business. Based on the classic
arguments, Dwyer et al. (1987: 12) summarized the process characteristics of relational- 94 -

exchange in a buyer and seller relationship: “Relational exchange participants can be
expected to derive complex, personal, noneconomic satisfactions and engage in social
exchange. Because duties and performance are relatively complex and occur over an
extended time period, the parties may direct much effort toward carefully defining andmeasuring the items of exchange.” In the market-based knowledge development process,firms make a series of investments in relation-specific assets(Dyer, 1996a, b, 1997; Dyer
& Singh, 1998; Gulati, 1998; Takeishi, 2001, 2002). The previous literature which
focuses on automobile industry implies that these close working relationships with thebuyers’ personnel and relation-specific investments for physical assets are necessary
conditions for developing market-based knowledge. This may lead to the development
and evolution of local market–embedded knowledge over time. Through continuous
human contact between both parties, capabilities in just-in-time operations become
unique functions that are rarely imitated by competitors (Clark &Fujimoto, 1997;Dyer& Nobeoka, 1998), especially competitors from outside of Japan.
Determining how firms are interconnected through not only traded with customers,
but also non-traded transaction with competitors is the key for knowledge development
in marketing (Tallman et al., 2004; Niu, 2009). The case that well represents theeffectiveness of social capital generated in the non-traded transaction in the tied
network structure of a national market is the success of 7-Eleven and other convenience
store chains in Japan (the evolutions of convenience store industry in Japan). Although
7-Eleven is one of the world’s best-run convenience store chains that originally started
up in the United States, their success in Japan is a result of the adaption of local
innovation attempts to cope with local competition and meet with local customer
preferences, not an effective transfer of American knowledge (Ishikawa & Nejo,1998). In
the 1980s, an increasingly diverse pattern of individualization among consumers
developed in the Japanese market. To be able to respond to the changing market
environment, 7-Evelen and other competitors needed to introduce an online technologythat networked between stores, suppliers and headquarters to exchange and share sales
data on a single-item basis at each store. This technology is known as a POS (point ofsale) system and has been used as the primary tool for handling the item-by-item
management process. Data from the POS system has also been used for new productdevelopments and inventory controls. This moved the competition in the convenience
store industry from a quantitative expansion ideal to a more quality improvement–typeconcept in Japan (Ishikawa & Nejo, 1998: 2).
With the market leadership taken by 7-Eleven Japan, the firms without tradedtransactions (competitors) also have generated its social capital. The rivals have beencatching up and imitating the 7-Evelen’s efficient supply chain system powered by POS
and eventually the POS based supply chain management has become the industrial
standard in Japanese market. This evolution pattern supports the social capital conceptthat firms in a closed and dense network tend to follow the same strategy simply by- 95 -

imitating succeeding competitor’s resource bundles. Individual actors may accept thevalue of the resource because they wish to remain members of the group or identify withthe group and they are willing to accept the group’s value.
Today, the world’s top three largest convenience store chains in terms of numbers ofstores on a worldwide basis are all owned and run by Japanese firms, namely, 7-Eleven(with over 33,000 stores), Family Mart (with over17,000 stores) and Lawson (with alittle less than 10,000 stores). They all have installed and maintained POS systems withoriginal labeled product develop capabilities in sustaining their competitiveness in themarket, not only in Japan, but also in Asian markets because they all have learned fromhigher local competitions and interactions in Japanese market.
Structural Holes Effect
While the social capital perspective focuses on the benefits derived from being amember of a dense and closed network, other scholars have proposed that there arebenefits to bridging two different local networks in an overall network. Remarkable
work done by Granovetter (1973) in his dissertation focused on the benefits of linking
network structure to personal job searches. He collected data about how people foundtheir current jobs by asking the name of close contacts. The results showed that whilejobs were never found through close contacts, information about job opportunities camethrough personal contacts that were often distant, such as high school friends. “Thestrength of weak ties” is another effect of network structure that represents how weakties can integrate the flow of information from different social groups. This observationsuggests that bridging between one clique (a local cluster or group in overall network
structure; we name it for a local network in this paper) and another will provide
extensive positive effects for new knowledge acquisition. Burt (1992) indicated that the
spread of information about new ideas and opportunities must come through the weakor strong ties that connect actors in separate cliques. No matter how numerous its
members are and how valuable social capital they have generated, one clique is only one
source of knowledge, because actors connected to one another tend to know about thesame things at almost the same time. Network efficiency can be measured by the
number of non-redundant contacts in a network. Therefore, maximizing the
non-redundant contacts maximizes the structural holes obtained per contact. Gulati
indicated the importance of the informational role of the position an actor occupies in
the overall structure of the network. Actors occupying similar positions need to be tied
to the same set of other actors or similar sets of other actors(1998: 296).The structural
holes that connect non-redundant contacts are the key to information (or knowledge
development) benefits (Burt, 1992; Gulati et al., 2000).
For firms pursuing market-based knowledge developments and acquisitions in global
arena, this discussion suggests that the major benefits that come from global market
access can be attained by maximizing the number of accesses to non-redundant contacts- 96 -

that represent different local markets on a worldwide basis. When each local network(market or clique) has developed its own knowledge, connecting the markets that arecharacterized as dense, having strong ties between members and closed from outside, afirm will receive benefits from resources of a locally dispersed market network. And
market-based knowledge developed in a clique through strong interactions amongmajor customers and competitors can easily be shared with members of a clique. This
may decrease the value or rareness of the knowledge within the clique because everyonein this clique can access the knowledge that developed through the joint efforts of allactors. There may be a high similarity of products offered by members in the clique,however the knowledge in one clique may be new and rare to others outside of the clique.
This explains well the reason why most studies in international marketing focus on
maintaining effective coordination between parents and subsidiaries of MNEs, as we
previously discussed in order to connect knowledge among different locations. One of
the advantages of an MNE, compared with domestic competitors whose geographicalreach of operations is limited, is occupying position in which knowledge from different
locations can be connected in order to introduce knowledge from one location to otherlocations within the internalized organization.
From the perspective of the RBV(resource based view of the firm), then, importantvalue-generating resources can be inimitable by outsiders because these resources lie in
the firm’s network of relationships. von Hipple (1988) found that in the semi-conductor
processing industry, users were the developers of about 80% of the most importantscientific instrument innovations and also the developers of most major innovations. He
also found that much information needed byproduct and service designers (users andmanufacturers) is sticky to its location (von Hipple, 2005). He saw that innovations
developed by lead users will be based on better information about users’ needs andlocational context in general than those developed by manufacturers; however, it can besaid that the value of innovation may stick to the location where it was originallycreated. von Hipple stated that information is often sticky, as has been shown bystudying the cost of transferring information regarding fully developed process
technologies from one location to another (2005: 67). Regarding to the cost involved inknowledge transfer, Kogut and Zander pointed out that outward direct investment from
Italy is impeded by the difficulty of transferring knowledge grounded in the close ties
within industrial and regional networks(1993: 517). Even through an internalizedorganization such as an MNE, knowledge transfer will have a cost for firms because
knowledge generated within a clique of an overall network is location (clique)specific innature. If the knowledge is network specific, then outsiders or new entrants are not able
to access the information of the local network or clique, which locks them out of newopportunities (Gulati et al., 2000).
International marketing researchers have seen that local marketing environments,
such as customer characteristics and desired benefits, key competitors and their- 97 -

resources and marketing infrastructure, differ from one market to another, which
requires a firm to substantially modify its competitive positioning to compete effectively
in each local market (Craig & Douglas, 2000: 6). Firms in a closed national market
compete with one another in their specific local context. This discussion indicates thatwhen information is processed from a local dense and closed market (with customers
and competitors)into an organization along with a process of market-based knowledge
development, this developed knowledge may have a high degree of network specificity.
This will lead to high inimitability by outsiders so that this particular knowledge tends
to be new and rare to the firms outside of the local network.

Discussion and Propositions
Figure 1 shows two typical types of global market network structure and represents
the favorable network structural conditions for new market-based knowledge
developments and acquisitions of MNEs. Based on the network structure view
discussed above, a locally dispersed global market network can be a favorable structure
for new knowledge developments and acquisitions. First, because social capital will be
generated and evolve through a dense and closed local network structure, a national
marketing network can itself be seen as a distinct source of new knowledge. Second,from the structural holes perspective, when network efficiency can be measured by the
number of non-redundant contacts, an open linked network, in which it is assumed that
all major actors in global markets (including major customers, competitors and globally
operating institutions) are linked to another, may not be a useful source of new
knowledge development and acquisition. One network or cluster that connects all actors
can be seen as one source of information so that actors in a network will share the same
information. On the other hand, in a locally dispersed global market network a firm will
have chances to access multiple non-redundant contacts. This provides better
opportunities for new knowledge development and acquisition because developed andevolved knowledge in one clique can be new and rare to the outside firms who have notparticipated in its development.
To summarize our discussion above, market-based knowledge developments andacquisitions in global markets may be influenced by the network structure of a firm’s
global market access patterns. First, firms are better off to engage in being a member ofa national or geographically limited market to develop local market-based knowledge
that may be new and rare to the firms locates outside of the local network. Intensive
interactions among local actors, including main customers, competitors and other local
institutions, will generate social capital that could not developed by a single firm. Only
by participating in a clique can a firm gain access to and utilize social capital, including“knowledge in the air,” to develop knowledge that is new and inimitable by the rest of
the global market, especially for potential customers and future competitors. Here I- 98 -

Figure 1

Two Network Structures in Global Markets

propose that the locally dispersed network structure of overall global markets is one of
the key elements for new market-based knowledge developments and acquisitions. If we
can assume the existence of a strong linkage between a focal firm and the primarycustomers and competitors in a market in the process of knowledge development, theresulting propositions are as follows:
Proposition 1: A high degree of strength of linkage between major customers and major
competitors within a national market may be more favorable conditions for the processof new market-based knowledge developments.
Proposition 2: A high degree of closure in a local market network structure in theprocess of new market-based knowledge development will make the knowledge that
more likely to become new and rare to the potential customers and competitors in
outside of the network.
Proposition 3:Overall, a locally dispersed global market network structure can besuitable conditions for new market-based knowledge developments and acquisitions.

Implications and Limitations
This study proposes a new way to analyze global markets as external conditional
factors for firms’ market-based knowledge developments. It suggests paying more
attention not only to national differences in the conventional marketing factors, but also
to the network-structured embeddedness among major actors in a market. This simply
implies that the market network structure should have some degree of effect on newmarket-based knowledge developments and acquisitions in the global markets. The- 99 -

critical assumption was that a locally dispersed global market network structure could
provide more opportunities for new market-based knowledge developments andacquisitions. When network efficiency can be measured by the number of
non-redundant contacts, a globally linked network, in which it is assumed that all major
actors in global markets are linked to one another, may not be a useful source of new
knowledge developments because one network is one source of information. In contrast,
a locally dispersed global market network will provide firms with more opportunities toaccess and deploy multiple non-redundant contacts. In terms of new knowledge
development, evolved knowledge in one clique can be new to firms in another clique inthe overall global market network.
This study focuses on development the theoretical basis on this subject; therefore themajor limitation is the lack of empirical data to support those propositions. In future
research it needs to test proposed propositions in this article. Another limitation can befound when we generalize this theoretical assumption for cross-sectional settings. The
previous literatures suggest that a locally dispersed global market network can be morefavorable conditions for the industries of culture bounded products and consumer goods,
not for culture free and industrial goods markets. We need to take careful look into the
influence of those external factors on new market-based knowledge developments forfurther empirical investigations.

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