While geographic co-location has obvious benefits for firm innovation, it can also have serious drawbacks.

HBS professor Juan Alcácer and Ross School of Business professor Minyuan Zhao explore how firms tap into the rich resources of technology clusters while protecting the value of their innovations. To understand R&D dynamics in a cluster, the scholars argue, we must recognize that a firm located in a particular cluster may also be part of an extended network, with its operations strategically integrated across multiple locations and multiple business lines.

Key concepts include:

* When surrounded by direct competitors, the technology leaders in a cluster favor technologies that can be quickly developed internally, and more of their R&D projects involve researchers from other locations, particularly from primary R&D sites.

* Internal linkages across a firm protect firm knowledge from appropriation not only in countries where intellectual property rights protection is weak, but also in risky competitive environments in general.

The full working paper is available here.

Republished with permission of  HBS Working Knowledge