Innovation in Clusters and the Liability
of Foreignness of International R&D
MAX VON ZEDTWITZ
Why do firms conduct research and development (R&D)? The foremost reason, reinforced by commercial realities, is their quest to innovate, that is, to develop new and marketable products and services, to research technologies underlying their revenue drivers, and to provide their company with the internal resources necessary to compete in the marketplace. R&D is therefore considered an engine for growth (Buderi, 2000).
An important component of R&D is a company’s ability to absorb technology developed elsewhere. Particularly early-stage R&D, from research to prototyping, is often directed at absorbing external knowledge to enhance a firm’s knowledge base rather than to develop a concrete product. This can be seen in the large number of research activities conducted without a clear connection to product divisions. In the pharmaceutical industry, such research leads to the high attrition rate of new drug development, forcing companies to pay great attention to retaining and protecting knowledge while generating maximum learning from each R&D investment. In other R&D-intensive industries, however, companies produce knowledge that they do not wish to use themselves, purposely allowing it to dissipate through various means to other firms, often even to competitors (Rogers, 2003). In such industries, highly competent and knowledgeable R&D aimed at recognizing and absorbing externally created technology, gives parent companies a head start in competition (see Cohen and Levinthal’s concept of absorptive capacity, 1990).