Niche and performance: the moderating role of network embeddedness

TLDR

The study investigates how product and process niche positions relate to firm performance and how this relationship is moderated by network embeddedness. The authors define product niche and process niche as the extent of distinctive products and operational processes, respectively, and analyze venture capital firms’ IPO holdings from 1995–98 to examine their interaction with network embeddedness. The analysis reveals that product and process niche interact with network embeddedness to influence firm performance, with higher network embeddedness amplifying the positive association between distinctive products or processes and performance. © 2004 John Wiley & Sons, Ltd.

Abstract

What is the relationship between niche and performance? We identify two types of niche positions—product niche and process niche—defined by the extent to which a firm offers distinctive products and has distinctive operational processes, respectively. We argue that the effect of each niche on firm performance is contingent upon network embeddedness—the extent to which a firm is involved in a network of interconnected inter-firm relationships. Using data covering the period 1995–98 pertaining to venture capital firms and their holdings in initial public offerings (IPOs), we show that both product niche and process niche interact with network embeddedness to determine firm performance. Our findings suggest that the extent to which a firm offers distinctive products or processes will be more positively associated with firm performance when network embeddedness is high. Copyright © 2004 John Wiley & Sons, Ltd.