Introduction  (Page 14/20)

Knowledge spillovers

Knowledge Spillovers allow knowledge to be reused providing increased productivity through greater leverage of the investment made into its creation or acquisition (OECD 1996). Whereas other resources such as capital or fuel can only be exploited once, knowledge can be used to provide many and separate returns. For example, research for materials to make stronger car components may also allow improvements in aerospace components.

Spillovers can occur between organisations of any type and can be either intra- or inter-industry (Cantwell and Piscitello 2005). They can occur between organisations of any nature, and also through intermediaries (Lawson and Lorenz 1999). Another interesting factor in knowledge spillovers is that they can be voluntary or involuntary (EU 2003). The spill-over of knowledge within regions is an important driver of cluster theory, which is described later in this section, though the spatial spilling of knowledge is not restricted to regions, particularly thanks to modern communications systems and the increasing mobility of workers. Research by Luintel and Khan (2004) for example demonstrates this cluster development role, together with the potential negative effects of spillovers. Their work describes how research and development spillovers from the US provide greater assistance to competitors than that which they receive in return.

Both public and private investments in basic research can have significant spill-over effects beyond their initial objectives (Porter and Stern 1999). Public sources of knowledge are of particular importance as they are more likely to spill-over, as the dissemination of knowledge is typically part of the mission of the public research institution (Doring and Shnellenbach 2006).

The knowledge involved can be technical or non-technical in nature and spill from one industry to another. Tacit knowledge spillovers tend to be localised in nature (Boddy 2005). As ICT makes dissemination of codified information fast and inexpensive, face-to-face interactions and interpersonal relationships have come to have a comparative advantage in facilitating tacit knowledge flows (Porter 1990). The effects of these spillovers have been shown to be important drivers of cluster development.

As described by Doring and Shnellenbach (2006), however, knowledge spillovers do not only give access to ‘exclusive’ knowledge available from a specific source, but also provide easier or cheaper access to other, often widely available knowledge.

The effect of knowledge spillovers not only figures as a benefit to existing businesses within a locality, but also as a factor influencing the decisions of multinational firms as to where they locate R&D operations (Cantwell and Piscitello 2005).

Competitive advantage

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage. Michael Porter identified two basic types of competitive advantage: