Media Releases

Access to global networks drives tech firms’ ability to thrive

March 18, 2014

Learning across multiple global sites is key to growth and prosperity

TORONTO, ON – Tech­nol­o­gy firms who avoid transna­tion­al invest­ments miss out on oppor­tu­ni­ties to share  knowl­edge gen­er­at­ed else­where and risk iso­la­tion and fail­ure in the long run, says new research from eco­nom­ic geo­g­ra­phers at the Uni­ver­si­ty of Toron­to.

The study shows that a firm increas­es its via­bil­i­ty when it spreads invest­ment among strate­gic loca­tions around the world with clus­ters of sim­i­lar or relat­ed indus­tries, cre­at­ing a glob­al clus­ter net­work.

“By neglect­ing to build knowl­edge pipelines to indus­try hotspots around the world and tap­ping into local knowl­edge and tal­ent pools, they for­go growth oppor­tu­ni­ties and high­er growth poten­tial,” says Har­ald Bathelt, Cana­da Research Chair in Inno­va­tion and Gov­er­nance at the Uni­ver­si­ty of Toron­to and co-author of “Glob­al clus­ter net­works – For­eign direct invest­ment flows from Cana­da to Chi­na”, pub­lished in the Jan­u­ary issue of the Jour­nal of Eco­nom­ic Geog­ra­phy.

Bathelt and co-author Peng-Fei Li, a Bant­i­ng Post­doc­tor­al Fel­low, ana­lyzed 300 cas­es of invest­ments by Cana­di­an firms in Chi­na from 2006 to 2010 and found the emer­gence of glob­al clus­ter net­works as a new archi­tec­tur­al frame­work for glob­al­ized learn­ing. They also dis­cov­ered that whether or not a Cana­di­an firm was locat­ed in a clus­ter region domes­ti­cal­ly influ­enced the type of loca­tion where it chose to forge a link inter­na­tion­al­ly.

Firms from indus­tri­al clus­ters in Cana­da were five times more like­ly to invest in sim­i­lar Chi­nese clus­ters than firms from Cana­di­an non-clus­ters. Clus­ters as dis­tinc­tive local indus­tri­al com­mu­ni­ties can be both places of oppor­tu­ni­ties and areas of chal­lenges. Inno­va­tion-ori­ent­ed firms often orig­i­nate from suc­cess­ful clus­ters and already know how to inter­act in a cre­ative envi­ron­ment; they will like­ly invest in sim­i­lar clus­ters locat­ed else­where to ben­e­fit from the local learn­ing milieu of these areas. On the con­trary, cost-squeez­ing firms may view clus­ters as places full of com­peti­tors which dri­ve up costs and risks of unin­tend­ed knowl­edge spillovers, and con­se­quent­ly try to avoid such places.

Bathelt and Li warn that although many inno­v­a­tive tech­nolo­gies have local ori­gins, it is cru­cial not to rely sole­ly on local­ized learn­ing net­works in a com­mu­ni­ty, no mat­ter how suc­cess­ful they may have been in the past. The researchers say it is more impor­tant to search for, mobi­lize and inte­grate new ideas, tech­nolo­gies and knowl­edge on a glob­al scale.

“This doesn’t imply that entre­pre­neurs need to be locat­ed every­where because in each field, knowl­edge pools are dis­trib­uted very uneven­ly,” says Li. “Think Hol­ly­wood for movies, Paris or Milan for fash­ion, and New York and Lon­don for finance. Among tech indus­tries, a small world of inno­v­a­tive clus­ters exists, which con­tin­u­ous­ly improves exist­ing tech­nolo­gies and spo­rad­i­cal­ly gen­er­ates inno­va­tions that rede­fine the rules of the game in a glob­al con­text.”

To illus­trate the impor­tance of look­ing beyond local knowl­edge net­works, Bathelt and Li com­pare and con­trast the expe­ri­ences of Water­loo, Cana­da and Shen­zhen, Chi­na – both viewed as their country’s Sil­i­con­Va­l­ley – and the firms of Black­ber­ry and Huawei in par­tic­u­lar.

Though very suc­cess­ful inter­na­tion­al­ly, Black­ber­ry has always been a very local firm with research and pro­duc­tion facil­i­ties con­cen­trat­ed around its Water­loo head­quar­ters region. It was not deemed cru­cial to find new tal­ent and ideas out­side the local com­mu­ni­ty as the sup­ply of local tal­ent from one of Canada’s lead­ing tech uni­ver­si­ties was end­less. The researchers say that the firm’s iso­la­tion and result­ing igno­rance of fun­da­men­tal changes in the smart­phone indus­try com­bined with a grow­ing bureau­cra­cy con­tributed to its decline.

Con­verse­ly, Shen­zhen is an infor­ma­tion tech­nol­o­gy clus­ter with a rel­a­tive­ly weak local knowl­edge base and no lead­ing research insti­tu­tion near­by. Local firm Huawei over­came this appar­ent dis­ad­van­tage and adopt­ed a glob­al inno­va­tion strat­e­gy by estab­lish­ing research cen­tres in many coun­tries and tap­ping into var­ied knowl­edge pools, most­ly locat­ed in inno­v­a­tive clus­ters – includ­ing 20 years in Sil­i­con Val­ley, 15 years in Ban­ga­lore and Dal­las, and more than four years in Ottawa.

“By being in major places of inno­v­a­tive ideas in the tele­com world, Huawei has built a strong glob­al knowl­edge net­work that con­sti­tutes its suc­cess now and into the future,” says Bathelt. “Cana­di­an firms would do well to look fur­ther afield and engage sys­tem­at­i­cal­ly in cru­cial knowl­edge exchange in order to com­pete suc­cess­ful­ly in the glob­al econ­o­my.”

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Har­ald Bathelt
Depart­ment of Polit­i­cal Sci­ence
Uni­ver­si­ty of Toron­to
Tel: 416–946-0183

Peng-Fei Li
Depart­ment of Polit­i­cal Sci­ence
Uni­ver­si­ty of Toron­to
Tel: 647–519-7996

Sean Bet­tam
Com­mu­ni­ca­tions, Fac­ul­ty of Arts & Sci­ence
Uni­ver­si­ty of Toron­to
Tel: 416–946-7950