Xavier Tinguely

The role of clusters in the global innovation strategy of MNEs

Purpose – This paper aims to focus on the role of clusters as home and host country-specific advantages for multinational enterprises (“MNEs”) in the organization of their internal and external networks to optimize the diffusion and generation of new knowledge. Strategic asset-seeking investment has been a major driver of the internalization of innovation activities performed by MNEs abroad. This paper demonstrates the attractiveness of foreign clusters in the global innovation process of MNEs. The main assumption is that location within innovative clusters may foster the ability of firms to generate new innovations. Design/methodology/approach – This paper illustrates the theoretical developments through the example of firms located in the Basel pharmaceutical clusters which have invested in other clusters abroad. Findings – The results are based on an in-depth patent data analysis and confirm the importance of clusters in an innovation-driven industry. Originality/value – This paper focuses on the role ...

Innovation and Economic Performance

Kline and Rosenberg wrote in their influential 1986 article (p. 279): “There is no need to belabor the point that technological innovation is absolutely central to economic growth and to improvements in efficiency. If there is any residual doubt, one need only think back 100 years to 1885 and ask, ‘Would any commercial firm operating as it did then survive in today’s economy?’” The answer to this question is undoubtedly no. Similarly, a firm operating as it did in 1985 would not survive in today’s global economy. Although it is now well established that innovation and technological change are essential in enhancing long-term economic growth and standards of living, the study of the impact of innovation on economic performance has long been partially neglected in mainstream economics.

Swiss inward FDI and its policy context

Switzerland has constantly sought to build an open economy in which foreign actors have been a crucial element of the economic growth process. The quality of the business environment, the central geographic location in Europe and the stability of the political, legal and social system have traditionally attracted a relatively high-level of inward foreign direct investment (IFDI) to the country. However, this success should not be taken for granted. The current economic crisis and the globalization of the world economy are challenging the attractiveness of Switzerland as a FDI location. In a context of fierce competition among countries to attract FDI, Switzerland has constantly to improve the quality of its business environment in order to remain a competitive location for foreign investors.

The Measurement of Innovation

While it is beyond dispute that innovation is the main driver of the continual increase in standards of living (Verspagen, 2005, p. 487), measuring innovation is complicated by the fact that it is a continuous process involving some kind of novelty original and qualitative changes and that it tends to generate positive spillover effects far beyond its industry of origin (Kline and Rosenberg, 1986, p. 279; Carter, 2007, p. 18). As posited in the previous chapter, the high-profile literature on growth avoided the measurement issue by developing complex theoretical models without empirical evidence (Carter, 2007, p. 15). As measurement is a sine qua ??? condition for a wider acceptance of the economic significance of innovation to society and to scientific progress in the field, economists and government organizations have bypassed the problem by developing measures that captured some aspects of innovation in the process (Carter, 2007, p. 15). A large debt is owed to the work of the OECD from the 1960s and economists such as Schmookler (1950, 1954) and Price (1961, 1963), who directed the attention of scholars to the measurement of science and technology (Godin, 2002a, p. 4). Nevertheless, it is essential to underline that the complexity of the notion of innovation, as emphasized in Chapters 1 and 2, makes it particularly challenging to measure.

Geographical Distribution of Inventive Activities and Inventive Performance in Switzerland

The theoretical developments presented in parts I and II established that innovation is crucial to the enhancement of economic growth and standards of living in the long run (i.a. Schumpeter, 1937/1989; Romer, 1990; Grossman and Helpman, 1991a, b; Aghion and Howitt, 1992; Sala-I-Martin et al., 2009). However, the intrinsic characteristics of the innovation process tend to make innovative activities concentrate in certain locations (i.a. Freeman, 1991; Jaffe et al., 1993; Feldman, 1994; Audretsch and Feldman, 1996; Malmberg et al., 1996; Asheim and Gertler, 2005; Fagerberg, 2005). Despite the globalization of the economy, the benefits of economies of agglomeration, knowledge spillovers, access to tacit knowledge, and constant interactions between the different actors involved in a region’s innovation infrastructure strengthen the role of location in the innovation process. This observation has generated a large number of studies analyzing from many different angles the spatially bounded nature of economic and innovative activities (i.a. Marshall, 1890/1916; Weber, 1909/1929; Myrdal, 1957; Perroux, 1950; Nelson and Winter, 1982; ???? et al., 1990; Krugman, 1991a, b; Storper, 1992; Nelson, 1993; Cooke and Morgan, 1994; ???? and Usai, 2000; Porter, 2000).

The Cognitive Nature of the Innovation Process

The first part of this book unveiled four main findings. First, innovation is a subtle concept. Even if everybody has a broad idea of what innovation is, when we start digging, innovation appears to be a particularly complex notion. Second, innovation is mainly performed in firms. Although individuals or other types of organization, such as universities, research institutions, and hospitals, participate to a large extent in the innovation effort and can be the source of important innovations, the vast majority of innovations are in fact implemented by private firms. Third, innovation is crucial to economic growth and standards of living in the long run. In today’s globalized economy in which knowledge is crucial, innovation plays a key role in sustaining and developing competitive edge. Fourth, innovation is difficult to measure. As innovation is a continuous process involving some kind of novelty and qualitative change, it complicates its own measurement.

Clusters and the New Geography of Invention — An Empirical Analysis of Pharmaceutical Patents Applied for in the Basel Employment Basin

Based on what has been developed in the previous chapter, it clearly appears that the pharmaceutical sector occupies a prominent place in the Swiss invention landscape. Besides contributing to a large number of patent applications, it also exhibits unique geographical patterns underlining a particularly strong concentration in the employment basin of Basel. However, the globalization of the economy has deeply altered the innovation process. As explained in the second part of this book, firms can now draw on the specific profile of many different types of environment and tap into foreign knowledge by instituting a global network of subsidiaries and partnerships. The globalization of competition and the increasing importance of knowledge and innovation as the main sources of competitive advantage have led firms to rethink and rearticulate their innovation processes.

The Geography of Innovation in a Globalized Economy

As was argued in the previous chapter, the world is still relatively spiky.1 Contrary to popular belief, despite the obvious globalization of the economy, productive and innovative activities continue to be concentrated in certain locations (i.a. Krugman, 1991a; Feldman, 1994; Florida, 1995; Enright, 1998; Porter, 1994, 1998a, b; Solvell, 2002). The greater integration of the world economy has nevertheless unveiled many new opportunities for firms to take advantage of the capabilities and competencies of a broader range of environments (Dunning, 1998, p. 45; Dunning, 2008, p. 83; Ketels, 2008, p. 124). While until the late 19th century firms used to perform the great majority of their activities within their home country or even their home region, improvements in communication, transportation, and storage techniques progressively led them to reassess the role of location in their business strategy (Dunning and Lundan, 2008, p. 154). This new economic reality gradually opened up new perspectives for firms to disaggregate their value chain across different types of location worldwide (Hertner and Jones, 1986; Moore and Lewis, 1999).

The Clustering of Innovative Activity

As put forward by Fagerberg (2005, p. 180): “A central finding in innovation research is that firms seldom innovate in isolation.” The external environment and interactions with customers, suppliers, service providers, firms in related industries, competitors, or other private and public organizations (e.g. universities, research institutions, business associations) are particularly important to avoid bottleneck issues, stimulate innovation, and increase the success of the innovation process (Feldman, 1994, p. 2; Porter, 2000, p. 253; Fagerberg, 2005, p. 180; Audretsch and Aldridge, 2008, p. 67).

Sectoral Distribution of Inventive Activity and Specialization Patterns — Towards an Identification of Switzerland’s Main Inventive Clusters

As pointed out in the previous chapter, inventive activity is unevenly distributed across the Swiss territory and this unevenness is even more obvious at the level of small geographical units of analysis. Despite the unequal levels of inventive performance between regions, a certain concentration of inventive activity has been observed in the western and north-eastern parts of Switzerland. The goal of this section is to go one step further and to investigate in more detail the specialization patterns of inventive activity in Switzerland by conducting sectoral-level analyzes and identifying the country’s main inventive clusters.1 As argued in the second part of this dissertation, economic and innovative activities linked by commonalities and complementarities tend to concentrate in certain geographical areas and to form what has been called in the literature clusters or regional innovation systems (i.a. Marshall, 1890/1916; Porter, 1990, 1998a; Krugman, 1991a, b; Nelson, 1993; Freeman, 1995; Cooke, 1998). Despite the widening of the world economy, these “evolutionary phenomena of economic geography” are still a crucial source of innovation, productivity growth, and competitiveness as they give access to precious location-bound assets (such as tacit knowledge) that cannot be easily transferred across locations or accessed from a foreign location.