Local R&D Strategies and Multi-location Firms: The Role of Internal Linkages

by Juan Alcacer & Minyuan Zhao

Overview — While geographic co-location has obvious benefits for firm innovation, it can also have serious drawbacks. HBS professor Juan Alcácer and Ross School of Business professor Minyuan Zhao explore how firms tap into the rich resources of technology clusters while protecting the value of their innovations. To understand R&D dynamics in a cluster, the scholars argue, we must recognize that a firm located in a particular cluster may also be part of an extended network, with its operations strategically integrated across multiple locations and multiple business lines. Key concepts include:

When surrounded by direct competitors, the technology leaders in a cluster favor technologies that can be quickly developed internally, and more of their R&D projects involve researchers from other locations, particularly from primary R&D sites.
Internal linkages across a firm protect firm knowledge from appropriation not only in countries where intellectual property rights protection is weak, but also in risky competitive environments in general.

Author Abstract

This study looks at the role of firms' internal linkages in highly competitive technology clusters, where much of the world's R&D takes place. The leading players in these clusters are multi-location firms that organize and integrate knowledge across sites worldwide. Strong internal links across locations allow these firms to leverage knowledge for competitive advantage without risking critical knowledge outflow to competitors. We examine whether multi-location firms increase internal ties when they face appropriability risks from direct competitors. Our empirical analysis of the global semiconductor industry shows that when leading firms co-locate with direct market competitors, innovations tend to be quickly internalized, and are more likely to involve collaboration across locations, particularly with inventors from the firm's primary R & D site. Our results suggest that R&D dynamics in clusters are heavily influenced by multi-location firms with innovative links across locations, and that future research on technology innovation in clusters should account for these links. Keywords: technology clusters, knowledge spillover, internalization, appropriability. 33 pages.