Trapped or spurred by the home region? The effects of potential social capital on involvement in foreign markets for goods and technology

Abstract

Drawing on social capital theory and the international business literature, we argue that domestic geography, in terms of localized potential social capital, facilitates individual firms’ awareness of business opportunities, including knowledge related to involvement in the foreign markets for goods and tech- nology, thereby enhancing firms’ involvement in those foreign markets. When potential social capital reaches a certain threshold, it may work to trap firms into operating only within their home regions, thus reducing involvement in foreign markets. We conjecture that firms’ research and development invest- ment moderates the relationship between potential social capital and degree of involvement in foreign markets, but given the very different properties of the two markets, with different signs for each market: a positive moderation effect for the markets for goods, and a negative effect for the markets for technology. We find empirical support for our arguments based on a representative sample of around 2000 Italian firms.