Absorptive capacity and the reach of collaboration in high technology small firms

Abstract

The current paper is concerned with exploring the role of absorptive capacity in extending the reach of innovation-related collaboration in high technology small firms. Drawing on survey data from a sample of 316 Dutch high-tech small firms, engaged in 1245 collaborations, we explore the relationship between R&D expenditure and distance to collaboration partners. In general terms, we find most partners to be ‘local’. However, controlling for a variety of potential influences, higher R&D expenditure is positively related to collaboration with more distant organizations. The implications of our results for policy, practice and future research are discussed.

Introduction

In the academic literature, there is increasing consensus that a firm's embeddedness in a network of interfirm relations matters for its economic and innovative performance (Gilsing et al., 2008). Simply put, few firms appear able to innovate alone (Tether, 2002). Moreover, and for some time, the benefits of collaborative innovation have been thought to apply particularly to small firms (e.g. Rothwell and Dodgson, 1991). The caricature of small firms as behaviourally advantaged but materially constrained (Nooteboom, 1994, Rothwell, 1983) has frequently seen networks presented as the logical means to ameliorating resources constraints, while preserving behavioural advantages (Hewitt-Dundas, 2006). Certainly, there is plenty of empirical evidence to support the importance of involvement in networks for innovation in small firms – from the classic accounts of the new industrial districts of the Third Italy (e.g. Becattini, 1978) to more recent empirical studies (e.g. Fukugawa, 2006). Innovation-related collaboration has also attracted the attention of policy makers. Bougrain and Haudeville (2002), for instance, note a growing preference for network promotion policies (over those that provide direct financial assistance) within OECD economies. Undoubtedly, much of the inspiration has been provided by the systems of innovation literature (e.g. Lundvall, 1992). The suggestion that underinvestment in R&D may not solely be a consequence of market failure, but may also be caused by a lack of interaction between innovation actors, has proven to be particularly attractive to European policymakers struggling to meet the Barcelona targets.¹

A central feature of the more popular expositions of innovation systems is the treatment of ‘space’. Whether systems are bounded at the local, regional or national level, the implication is that proximity matters. Empirically, studies typically indicate a distance decay function in communication, of varying extent (Howells, 1999). In this sense, the importance of proximity is thought to ‘reflect the linguistic and geographic constraints imposed by person-embodied exchanges and transfers of tacit knowledge’ (Patel and Pavitt, 1994: p. 218). Geographical proximity makes it more likely that firms will encounter potential collaboration partners and, after the collaboration takes off, it enables personal and more frequent contacts easing the transfer of tacit knowledge and offering better opportunities to resolve emerging conflicts. For policy makers the proposed significance of geographical proximity has been a key argument in the implementation of popular policies focussing on geographical clusters (Fritsch and Stephan, 2005).²

More recently, however, the necessity of geographical proximity has been questioned (e.g. Torré and Rallet, 2005). Underpinning this, is the regularity with which empirical studies of innovation-related cooperation record a higher incidence of extra-local linkages over local linkages; suggesting that firms draw from innovation sources at a variety of spatial scales (e.g. Arndt and Sternberg, 2000, Kaufmann and Todtling, 2000). However, the ability to identify partners, to transfer knowledge and resources and to manage relationships at a distance is unlikely to be easily acquired. Rather, firms are likely to have to make conscious investments in such capabilities – principal amongst which will be investments in absorptive capacity. Here too, small firms may be particularly disadvantaged. Limited R&D expenditures and a focus on exploitation rather than exploration may lead small firms to be more dependent upon partners in their immediate locale.

The current paper adds to the literature by exploring the connection between firms’ absorptive capacity and the geographical distance to their collaboration partners. This connection has been proposed before (Torré, 2008) but has not been demonstrated empirically. As absorptive capacity is a contingent factor in opportunity recognition, alliance formation and the accumulation of resources available through social networks (Soh and Roberts, 2005), we hypothesise that investment in absorptive capacity may help compensate for a lack of geographical proximity in innovation-related collaboration. Drawing on survey data of 316 Dutch high-tech small firms, our hypothesis is confirmed, suggesting a different emphasis for both business and industrial policy. We hereafter elaborate on our hypothesis, data, methods and results, and conclusions and implications.