Exploitative innovation and exploratory innovation in industrial clusters : moderating effects of different network ties

Abstract

The phenomenon of firms co-locating to cluster within a region has been observed for a number of years. Clusters significantly influence the competitiveness and innovativeness of regional economies. Firms need to consider both location-related and network-based strategies because geographical proximity and networks are intertwined and important to organizations' innovation and performance. This study empirically examines the main effects of industrial cluster on firms' innovation, as well as the moderating effects of a firm's network ties in the relationship between its location choice and different types of innovation. Theories of economic geography and network suggest that firms benefit from spatial concentration or organizational relationships. This study developed hypotheses regarding the effects of location-specific and network-centered strategy on firms' innovation, aiming to measure the unexplored issue of actual relationships between geographical proximity and innovation, and disentangle the effect of networks from cluster mechanisms. To test the hypotheses, data were collected from a number of industrial clusters and non-clusters located in China. The results support the hypotheses that clusters indeed matter and that networks play important moderating effects on the relationship between cluster and innovation. The effect of spatial proximity on firm innovation is best exploited together with a firm's institutional (formal) or managerial (informal/social) connections. Institutional and managerial network ties exert distinct effects on different types of innovation for regionally clustered firms. In short, although being a member of an industrial cluster facilitates firms' exploitative innovation, it does not improve their exploratory innovation. The moderating effects of distinct network ties on the relationship between clustering and innovation are different. For example, institutional networks' moderating effects on the relationship between cluster and exploitative and exploratory innovation are negative. Managerial networks strengthen the positive relationship between cluster and exploitative innovation. However, managerial networks weaken the relationship between industrial cluster and exploratory innovation. In summary, proximity and institutional networks offer partially exclusionary advantages for innovation, whereas proximity and managerial networks present contingencies for exploitative and exploratory innovation.