Silicon Envy: New Research from USC Marshall and Koc University Says Imitation May Invigorate the Leader

In contrast to the received wisdom, Harmancioğlu and Tellis provide strong evidence for reverse innovation stimulation from emerging to developed clusters. Tellis emphasizes, “Emerging market clusters stimulate rather than compete with developed market clusters.”

The authors examined 16 years (1999-2014) of monthly data on three innovation metrics (startups, patents, and commercializations) in the top 10 global innovation regions including both emerging clusters (Silicon Plateau in Bangalore, Zhongguancun in Beijing, Silicon Island in Taipei, Silicon Fen in Cambridgeshire, and Silicon Wadi around Tel Aviv), and developed clusters (Shinjuku in Tokyo, Silicon Forest in Seattle, Silicon Hills in Austin, Route 128 around Boston and Silicon Valley). The authors found that the growth in innovation productivity of emerging innovation clusters facilitates growth in developed clusters by 10% (while the reverse effect is 8.5%). What mechanism could account for this reverse innovation stimulation?

The authors argue that individuals and/or firms do not take away innovation knowhow and managerial skills when they leave a developed cluster depriving it of that knowledge. “Rather, they take that knowledge and embed it in every cluster wherein they relocate (including emerging innovation clusters) allowing it to further flourish when combined with local knowledge,” explains Harmancioğlu.

Resource complementarities may explain why rival emerging innovation clusters stimulate rather than hinder developed clusters’ growth. The firms located in emerging innovation clusters pursue market demand at a global scale and create product technologies complementary to those in these developed markets. Such complementarity may foster collaborations with firms located in other emerging innovation clusters. Local firms combine their local advantages (e.g., skilled labor, time zone differences, and low-cost development capabilities) with their ability to identify the connection-led sources of growth (e.g., unserved demand and technical complementarity). While firms in developed clusters set up research centers in emerging regions, other firms from developing clusters (e.g., Infosys) establish offices in developed clusters (such as Silicon Valley or Shinjuku) to exploit developed market opportunities. The authors refer to this process as reverse innovation stimulation. Through this process, leading specialist firms from emerging innovation clusters contribute to the growth of developed innovation clusters.

Another counter-intuitive finding is that emerging innovation clusters also stimulate other emerging clusters’ growth. The reason is that emerging innovation clusters focus on different but complementary sources of regional advantage, such as hardware vs. software. “Hence, emerging cluster interactions do not follow expected zero-sum competition,” Tellis asserts. Nascent firms by nature concentrate their technological resources and marketing effort on specific geographic markets to avoid direct competition with other firms. “Different technology foci, for example in China versus India, may also entail complementarity regarding product technologies and marketing capabilities,” says Harmancioğlu. This complementarity may lead these innovation clusters to focus on different markets, avoid competition, and collaborate with each other. For example, an increase in market demand for hardware may increase demand for software or telecommunications service. Hence, hardware patents issued in Beijing may stimulate compatible software patents and commercializations in Bangalore.

Harmancioğlu and Tellis argue that the U.S. government and Silicon Valley firms should see emerging innovation clusters not as perennial threats but as partners in the global growth of high-tech innovations. Tellis advises, “Developed national governments should embrace reverse innovation stimulation as a source of cross-cluster fertilization for growth.” The existence of complementary relationships among global innovation clusters suggests different product and marketing strategies than those that were appropriate under zero-sum competition.

Further findings are that talent mobility, private equity, and venture capital are more influential on growth in innovation across clusters than general economic conditions (such as GDP and interest rates). Hence, policy makers should support the role of private equity and foreign direct investment. Most importantly, governments should encourage rather than restrict talent migration so that talent can freely migrate to the cluster with the best strategic deployment, employment match, and corporate returns. Governments may foster the growth of talent pools in their countries by investing in advanced degree programs, organizing international conferences, building inter-scientist networks, and training future scientists. This process may increase the number of inventors adopting boundary spanning roles in inter-cluster networks.

For additional information, or to speak with the researchers, please contact Matthew Simmons, USC Marshall Media Relations, at matthew.simmons@marshall.usc.edu or 213-821-9868.

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