Is it the big companies that are decisive? No, quite the opposite, says Frank Neffke. And with that, happy WORLD CREATIVITY AND INNOVATION DAY!
At the Complexity Science Hub, the scientist investigates how regions, companies and people find new growth paths – how people change jobs or companies develop new fields of activity.
We know that innovation today is very concentrated and skewed to a select few regions. “The top ten cities in the world hold about one-third of all patents issued by the U.S. Patent and Trademark Office (USPTO),” Neffke explains. For all other regions, it’s very difficult to climb up that ranking.
Neffke and his colleagues Arnaud Dyèvre and Riccardo Crescenzi from the London School of Economics, however, have identified a group of regions that have succeeded in doing so and that seem to have suddenly gained in prominence as centers of innovation. How did the likes of Bangalore, Seoul, and Guangdong manage to rise to the top of the innovation league?
Who is Joseph Schumpeter?
Josef Schumpeter is said to have set himself three goals at a young age: to become the greatest economist in the world, the best horseman in Europe and the best lover of Vienna. He came very close to the first in any case, as he is considered one of the most important economists of the 20th century and a pioneer of innovation research. Schumpeter coined terms like “innovation” and “creative destruction.”
FOREIGN DIRECT INVESTMENT IS DECISIVE
In their search for causes, the researchers discovered that foreign direct investment may have played a decisive role here. Regions that attracted foreign firms managed to accelerate local innovation. To look at the causal effect of FDI, the authors compared regions that attracted foreign tech firms to regions that were very similar, but without foreign R&D investments. The regions that where foreign firms entered, on average, climbed 14 percentiles up the innovation ranks.
However, the benefits depend very much on which foreign company is doing the investing. Bigger is not always better when it comes to benefits to local tech companies. On the contrary, the researchers show that small multinationals stimulate more local innovation and growth than flagship investors, transfering more knowledge than the firms that rank among the top 5% in their technology sector. The researcher calls this knowledge transfer spillovers, the unintended learning that happens when two firms locate close to one another.
BIG COMPANIES TEND TO BE ISLANDS
“Spillovers are great when you receive them, but not when you are the source of them. The biggest companies have most to lose and least to gain from unplanned knowledge spillovers, so they do everything they can to avoid them,” Neffke says.
That’s why tech industry giants tend to create more of an “island existence” when they invest abroad than others in the industry. For example, they are more likely to bring their own inventors to a new location and hire fewer inventors from local companies. Similarly, they are less likely to exchange inventors with local firms or to enter into local research collaborations. This suggests that policy makers may benefit from focusing less on the big names in tech and more on smaller tech firms that are more likely to engage and share knowledge in the local economy.
LOOK INTO THE FUTURE
In a new study, Neffke and a group of colleagues are now examining how the U.S. went from an agricultural economy to the frontier in technology and innovation. “This is a story that goes well beyond technological change and the work by a small number of famous inventors like Edison and the Wright brothers” Neffke explains. The researchers will show exactly what this consists of in their upcoming publication.