Firm performance in the periphery: on the relation between firm-internal knowledge and local knowledge spillovers

Abstract

This paper challenges one of the fundamental propositions within economic geography; that location in knowledge regions contributes to firm performance in general and especially for knowledge intensive firms that compete on the basis of knowledge. Our analysis of Swedish micro-data on 32,535 firms from 2004-2011 provides evidence that knowledge intensive firms benefit less from local knowledge spillovers than firms with comparably low in-house knowledge. This suggests that firms with high internal competencies can compensate for a lack of local knowledge spillovers and that negative knowledge externalities may make location outside knowledge centers more beneficial for such firms. One of the most established arguments in regional studies is that knowledge dynamics shape the geography of economic activities and, more specifically, that knowledge intensive activities benefit from collocation due to knowledge spillovers, local buzz and access to labor.This implies that knowledge-intensive firms should be less competitive in regions with low knowledge intensity. There are, however, competing arguments that knowledge intensive firms suffer more from negative spillovers and are less dependent on local knowledge sources than often presumed. This paper investigates these competing propositions based on Swedish micro-data comprising 32,535 firms from 2004-2011. It provides strong evidence for a negative relationship between the knowledge intensity of firms and local knowledge spillovers. While firms with weak internal knowledge grow faster in knowledge intensive regions, this growth difference disappears or is even reversed for knowledge intensive firms.

Innovation in the periphery: Compensation and exploitation strategies

“…Most of the investigated firms value the protective environment of peripheral regions, especially concerning labour poaching. Our results thus confirm findings from other recent studies (Grillitsch & Nilsson, ). Many respondents point to a high loyalty of the workforce (especially in R&D departments) and highlight its advantages: It limits undesirable knowledge spill‐overs, protects tacit knowledge, and strengthens the internal knowledge base (Flåten et al, ; Isaksen, ).…”

“…The findings also have implications for mainstream economic geography. In line with recent research (Fitjar & Rodríguez‐Pose, ; Grillitsch & Nilsson, , ; Isaksen, ; Meili & Shearmur, ; Shearmur & Doloreux, ), this paper has shown that innovation studies must overcome their predominant focus on core regions to also include conceptual and empirical work on innovation in peripheral regions. Furthermore, these findings contribute to the policy debate, as they dismiss the dominant unfavourable view on peripheral locations.…”

“…Though a stable workforce and too much cognitive proximity bear the dangers of lock-in (Broekel & Boschma, 2012), it also results in higher loyalty and allows firms to build strong internal expertise in niches (Isaksen, 2015;Isaksen & Karlsen, 2016). Arguably, the periphery may not only serve to protect firms from fierce competition over skilled labour but also from knowledge leaking out easily to competitors (Grillitsch & Nilsson, 2017).…”

Diverse diversities—Open innovation in small towns and rural areas

“…(Firm 6,Interviewee 26) This result corroborates the finding of Grillitsch and Nilsson (2017) that knowledge-intensive firms might suffer from (negative) knowledge spillovers which are more likely to happen in urbanized regions. But there are committees where we have exchanges [with firms in the same industry], for example, the Iron Link Network.…”

“…Our observations contribute to understanding why Grillitsch and Nilsson (2017) find no evidence that knowledge-intensive firms grow faster in knowledge-rich regions, and shed light on the question of how firms in small towns are able to maintain up-to-date and relevant knowledge. Our observations contribute to understanding why Grillitsch and Nilsson (2017) find no evidence that knowledge-intensive firms grow faster in knowledge-rich regions, and shed light on the question of how firms in small towns are able to maintain up-to-date and relevant knowledge.…”