The Regional Environment and a Firm's Innovative Performance: A Plea for a Multilevel Interactionist Approach

Abstract

Following the recent critical debate on the role of the firm versus that of the region, this article contends that for a true test of the importance of the role of the region for a firm's innovative performance firm‐specific heterogeneity needs to be minimized. Empirical studies have tended to deduce that the region matters from the macrophenomenon of regional clusters of economic activity. This deduction has led to an ecological fallacy, in which global phenomena or data aggregates that are actual representations of lower‐level phenomena cannot be generalized to those lower levels. This article argues that if researchers want to analyze how a firm's environment affects its performance, they need to include firm‐level strategy and structure. As an empirical illustration of this argument, the article presents a test—controlling for a number of firm‐specific factors—of whether regional characteristics like the intensity of regional research and development (R&D), the number of R&D workers in the region, and the presence of a research institute are significantly related to a firm's ability to produce innovations. The findings suggest that the firm‐specific drivers of innovation are more important than is a firm's regional environment. The article concludes that a renewed focus on the main actors and their interrelationships is needed, particularly those that involve the exchange of knowledge, to assess the extent to which such interactions are carried out within bounded territories.

On firms’ product space evolution: the role of firm and local product relatedness

“…By comparing the relative importance of firm and local resources and capabilities, Pfirrmann (1994) for a sample of Small and Medium Enterprises in Germany, Sternberg and Arndt (2001) on a sample of European firms mainly of medium and small size and Beugelsdijk (2007) for a sample of Dutch firms, all show that firm-specific resources are generally more important than a firm's regional environment for any kind of product innovation. Although this literature casts a shadow on the relevance of inter-firm interactions within bounded territories for firm growth and diversification processes, in our view, the concept of technological relatedness can redeem the absolute and relative contribution of local knowledge by shedding light on the circumstances under which and to what extent a regional environment can matter for product innovation.…”

“…The relevance of both within-firm and local cognitive proximities for innovation recalls an important literature debate on the quantification of the absolute and relative contribution of the existence of a fertile regional environment versus a firm's endowment of suitable capabilities for product innovation (Pfirrmann, 1994;Sternberg and Arndt, 2001;Beugelsdijk, 2007;Wang and Lin, 2012). larger knowledge base can importantly contribute to reduce a firm's entry cost in a brand new technology (Perez and Soete, 1988).…”

Localized inter-organizational linkages, agglomeration effects, and the innovative performance of firms

“…As a result of taking the region, rather than the firm, as the level of analysis, actual localized inter-organizational linkages are often not observed. Instead, it is assumed that when firms co-locate in large numbers, localized inter-organizational linkages are present (Beugelsdijk 2007;Dicken and Malmberg 2001). However, previous empirical research has shown that this assumption does not necessarily hold and that agglomerations and localized inter-organizational linkages are, at the firm-level, only weakly related (Arndt and Sternberg 2000;Mota and De Castro 2004;Sohn 2004).…”

“…Empirical evidence for the regional concentration of innovative activities is widespread and has developed into a line of reasoning that the regional environment is crucial for a firm's innovative performance (Beugelsdijk 2007). However, the majority of this empirical evidence is not built upon micro-level studies but is largely deduced from the macro-level phenomenon of regional clustering of innovative activities (Beugelsdijk 2007;Lever 1972;Phelps 1992).…”

“…However, the majority of this empirical evidence is not built upon micro-level studies but is largely deduced from the macro-level phenomenon of regional clustering of innovative activities (Beugelsdijk 2007;Lever 1972;Phelps 1992). As a result of taking the region, rather than the firm, as the level of analysis, actual localized inter-organizational linkages are often not observed.…”