by Pengfei Li and Harald Bathelt
Think about where innovative firms in high-tech industries are based: Silicon Valley, Boston, Shenzhen, Bangalore, Waterloo, Tel Aviv, London, Berlin, Toronto, and so on. In each field, we can identify a long list of innovative cities and clusters worldwide that make up specific economic geographies of knowledge generation and innovation.
These knowledge geographies are becoming increasingly specialized, diverse and uneven:
- Specialized in the sense that state-of-the-art technology in a field tends to concentrate in a limited number of clusters worldwide that become undisputed technology leaders.
- Diverse in the sense that innovative hotspots vary in their specialization within that field and that there is no single place which can monopolize innovation.
- Uneven in the sense that the dynamics of diversity and specialization lead to substantial spatial unevenness in the production of knowledge between the leading clusters and other regions.
This brings about fundamental challenges for strategists and economic geographers alike. The question is how specialized local knowledge pools are being (and can be) leveraged in an increasingly uneven global knowledge landscape and what the consequences of related strategic actions are? The paper, published in Global Strategy Journal, explores spatial knowledge strategies of firms – or: how do firms leverage knowledge between headquarters and subsidiary locations across corporate networks?
We find that one type of spatial knowledge strategies exploits existing differences in the knowledge profiles of a firm’s international headquarters and subsidiary locations. If a firm directs investments from an industrial cluster with a deep knowledge pool to a non-cluster area, an effective strategy is to replicate the firm’s home-base technology in the host market, as illustrated by many multinational enterprises that investigate in emerging economies.
In contrast, in a context within which a firm with a poor knowledge base invests in an innovative cluster region, it will benefit most from adopting a knowledge scouting strategy by establishing a listening post or R&D center in the destination cluster. Examples for such strategies are traditional automobile firms opening research labs for automatic driving technologies in Silicon Valley.
In a second type of spatial knowledge strategies, when a firm makes international investments that link two innovative hotspots, there are two nuanced ways of how new knowledge can be generated. In one case, the firm may benefit from simply connecting different elements of the two clusters’ knowledge bases in an additive manner. This is common practice in the investment processes of international business service providers, such as global law firms and consulting agencies. In the other case, the firm can gain by fusing the different knowledge components from diverse locations into a new knowledge body. Illustrations of such knowledge integrating strategies are high-tech firms that simultaneously embed themselves in differently specialized, related clusters – for instance in Silicon Valley to gain knowledge on conceptual innovation, in Shenzhen for hardware know-how and in Bangalore for software skills.
In terms of uneven economic geographies of knowledge, the above strategies likely have different outcomes. On the one hand, connecting and integrating strategies generate knowledge flows that link leading clusters with each other and increase existing disparities; on the other hand, replicating and especially scouting strategies can lead to knowledge flows that support a more leveled knowledge landscape and reduce spatial unevenness. In other words: firms, particularly multinational enterprises, are actively reshaping how the knowledge economy is spatially organized via their corporate innovation strategies. These may often lead to spatial imbalances but also have the potential to lower spatial inequalities.
Source: Li, P. and Bathelt, H. 2020. Headquarters-subsidiary knowledge strategies at the cluster level, Global Strategy Journal, 10(3): 585-618. https://doi.org/10.1002/gsj.1356
About the authors
Pengfei Li is Assistant Professor in the Department of International Business at HEC Montreal. He explores industry evolution and innovation strategies in a spatial perspective. His work has been published in journals such as Journal of International Business Studies, Journal of Economic Geography and Research Policy.
Harald Bathelt is Professor in the Department of Geography & Planning at the University of Toronto. His research focuses on industrial clustering; knowledge generation/innovation over distance, and regional industrial and institutional change. He has published in leading academic journals and is Editor of the Journal of Economic Geography and ZFW – German Journal of Economic Geography.