Abstract: The exogenous industrial clusters have grown rapidly through investment promotion in China, and embedded in the exogenous cluster network is a shortcut for local SMEs to grow rapidly and improve their competitive advantage, however, they must break through embeddedness barriers. Based on limited rationality and evolutionary game model, we describe four contexts of local SMEs embedded in exogenous cluster networks, and their different evolutionary stable strategies (ESS) as well as evolutionary paths. And only in one context, both sides choose the cooperative strategy as ESS, which means that the enterprises are successfully embedded in the networks.And then, through analyzing factor sensitivity and how embedding barriers should be broken through, we propose that the trust-based relationship governance helps local SMEs offset transaction costs and promote its embeddedness in exogenous cluster networks; the information-sharing-based learning mechanism is complementary to the advantages of contract and trust mechanism, and helps local SMEs increase relationship rents and magnify the value of network embeddedness.

Key words: exogenous clusters, network embeddedness, process governance, evolutionary game