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

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