How to manage strategic alliances in OEM-based industrial clusters: Network embeddedness and formal governance mechanisms

The rapidly growing original equipment manufacturer (OEM)-based industrial clusters have been a prominent form of economic organization in several emerging Asian markets. Characterized by close interdependence and intertwined personal linkages, firms of Asian OEM-based industrial clusters participate in the phenomenon of strategic alliances. However, how these alliances can be effectively managed through formal governance mechanisms within embedded networks requires further investigation. This study uses social network analysis to identify personal, ownership, and technology networks in 141 semiconductor firms in an OEM-based industrial cluster in Taiwan that feature different types of OEM-led alliances and the prevalence of Guanxi. We find that relational embeddedness based on personal ties and structural embeddedness based on ownership ties support the employment of formal governance mechanisms. We also pay particular attention to the moderating role of network embeddedness in diminishing the relationship between transaction hazards and formal governance mechanisms. By identifying the embeddedness context in the governance of alliances, our research contributes to a better understanding of the ways in which formal governance mechanisms are contingent on the network embeddedness of OEM-based industrial clusters in Taiwan and other similar Asian economies. ► Personal, ownership, and technology networks analyzed by SNA in 141 semiconductor firms in an OEM-based industrial cluster in Taiwan. ► Relational and structural embeddedness support the employment of formal governance mechanisms. ► Network embeddedness has diminishing moderating effect as well.