Local vs Global Links: What is the Trade-Off?

By

Réjean Landry

Department of Management

Faculty of Business

Laval University

Notes prepared for presentation and discussion at Innovation Systems Research Network Sixth Annual Meeting, Vancouver, May 13-14-2004

The argument:

• Knowledge is a production factor of increasing importance to foster innovation

• The absorption and transformation of knowkedge into innovation is complicated by two factors:

1. The continous expansion of the pool of codified knowledge which potentially creates situations of overload of information

2. The rapid dissemination of codified knowledge through information technologies which prevents the creation of competitive advantages because codified knowledge is readily available to other firms on a worldwide basis

• The creation of unique competitive advantages rests in forging links with other firms and actors in order to:– Identify the pertinent codified knowledge– Have access to the tacit knowledge

required to absorb and transform the codified knowledge into new product or process innovations

• Local links are more appropriate than global links for the sharing of tacit knowledge

• The litterature on clusters also focuses on the importance of local links arguing that increasing the local links leads to more vibrant clusters and more economic prosperity

• This litterature implicitly promotes an inward-looking view of local economic development which is just starting to be seriously challenged

• Maillat can be considered as an exception in this litterature because he has been arguing for 15 years that the milieu has to be opened to external flows of knowledge in order to avoid stagnation.

• However, the best discussion on the mix between local and global links has been produced recently by Bathelt, Malmberg and Maskell (« Clusters and knowledge: local buzz, global pipelines and the process of knowledge creation », Progress in Human Geography, 28, 1, 2004,pp 31-56)

• Bathelt, Malmberg and Maskell discuss issues related to the trade-off between too much local sources of knowledge (the local buzz) and too much external sources (the global pipeline)

• The purpose of this presentation is to continue their stimulating discussion with the help of empirical data

• As you will see we have more questions than answers

How much local buzz is too much local buzz?

Data:

• The data used in this presentation have been collected in a regional innovation survey administered in the Chaudière-Appalaches region to 615 manufacturing firms between October 09 2003 and December 09 2003

• Participation rate: 69.7%

Sales within 100 km:

The argument:• Clients pave the way to innovations as they

communicate ideas and information to firms about their needs and expectations. They are sources of ideas and information through inquiries or orders they place.

• According to Porter, vibrant clusters are characterized by the presence of sophisticated clients

Evidence on sales within 100 km:

Regional average : 46.5%

Highest averages:– Foods and beverages: 65%– Printing: 64%

Lowest averages:– Textiles: 29%– Plastic products: 31%

Questions? What is the optimal level of links with local clients? How much is too much dependance on local links? How much is not enough to derive benefits from local links?

Evidence on sales within 100 km:

In the machine tools industry, local clients serve as platforms to test and improve new machines. Local clients provide technical information and assistance which is essential to insure commercial success of new machines

Questions? How much is too much dependance on local links?

Evidence on sales to the USA:

Regional average : 12%

Highest averages:– Textile products: 19%– Plastic products: 18%

Lowest averages:– Foods and beverages: 5%– Chemical products: 5%

Questions? What is the optimal level of links with clients located in the USA? How much is too much dependance on external links?

Other evidence on sales outside Canada:

Average in the Québec Photonics cluster: 85%Firms in photonics co-develop products with clients

located outside CanadaClothing in the Beauce region: 100% of the production

is shipped to Montréal and from there to the USASimilar patterns exist for other clusters.

Questions? Does it mean that sophisticated clients are not essential to get vibrant clusters?

More evidence on sales

• In industries like clothing, furnitures and plastics products, China is getting the large orders and local firms are getting smaller and smaller orders requiring more flexibility and more just in time production

• In such industries, local firms expect to be able to keep about 25% of the market

• Question: does it mean that local links will become less pertinent?

Suppliers within 100 km

The argument:

• Suppliers of equipement and materials often provide ideas, information and informal technical assistance through their business interactions with firms. They are sources of ideas and information which stimulate innovations.

Evidence on suppliers within 100 km:

Regional average : 43%

Highest averages:– Printing: 63%

Lowest averages:– Textiles: 17%– Clothing: 17%

Questions? What is the optimal level of links with local suppliers? How much is too much dependance on local links? How much is not enough to derive benefits from local links?

Evidence on suppliers to the USA

Regional average : 43%

Highest averages:– Textile products: 30%– Wood products: 15%– Plastic products: 14%

Lowest averages:– Foods and beverages: 2.5%– furnitures : 2.6%

Questions? What is the optimal level of links with external suppliers? How much is too much dependance on external links? How much is not enough to derive benefits from external links?

What is the right mix between local and global links?

• What happens when the percentage of local clients and suppliers reaches levels above 60% like it is in some industries?

• Are such markets operating through economic, technical or social rules?

• Do such social markets provide protection against the invasion of local markets (by products from China or other countries)?

What is the right mix between local and global links?

• The large variations observed from industry to industry suggest that there is not one trade-off that would be optimal for all industries

• Are researchers and policy-makers doing too much promotion of social tools to promote local economic development?

Thank you for your attention

Questions?

Comments?