Friends or Neighbors? The Effects of Inter-Firm Network and Cluster on Technological Innovation

Abstract

We develop a conceptual model and explain how a firm’s cluster and network factors independently and jointly influence innovation catalysts and barriers and in turn enhance the firm’s likelihood of generating technological innovations. Cluster competitive intensity and social interaction influence the firm’s awareness of opportunities and motivation to engage in innovation. Knowledge flows through social interactions will primarily increase the firm’s ability to generate incremental innovations, but social interactions could enhance its ability to generate radical innovations when it has high absorptive capacity and internal resource variety. We suggest that the nature and extent of innovation benefits a firm can derive from the network depends on its network orientation. Resource acquisition orientation will contribute to incremental innovations, whereas resource co-development orientation contributes to radical innovations. Moreover, when absorptive capacity is combined with firm’s resource co-development orientation, the firm’s likelihood of generating radial innovation is intensified. We also suggest that network factors are more effective in overcoming resource constraints and internal rigidity barriers, whereas cluster factors are more useful in overcoming the uncertainty barrier and in increasing the awareness and motivation of the firm for innovation.

Keywords: Network, Cluster, Innovation, co-development, absorptive capacity