Innovation in the United States is not lacking. It’s just that patents are being registered in less-likely locales, according to researchers from Temple University’s Fox School of Business.
The findings are part of an ongoing research initiative spearheaded by Dr. Ram Mudambi, the Frank M. Speakman Professor of Strategic Management.
The umbrella project is dubbed iBEGIN, or International Business, Economic Geography and Innovation. A segment of the project explores innovation hubs in the United States, undertaking detailed analyses of more than 900 metropolitan areas in the U.S. In one of the first published outcomes of this research effort, Mudambi and his team examined the evolution of Detroit, a mainstay of the global automotive industry for over a century. While Detroit, a downtrodden city, continues to experience manufacturing decline, it is doing well as an innovation center, he said.
“The beauty of innovation is that it never stops,” Mudambi said. “In 1960, the U.S. was the richest country in the world, and Detroit was its richest city. And while the city has been in a continuous state of decline, we found that Detroit’s innovation numbers are very healthy.”
iBEGIN researchers define innovation through patent output, and they say Detroit’s patent output since 1975 has grown at a rate of almost twice the U.S. average. Detroit’s innovative resilience, Mudambi said, is due to its continuing centrality in global innovation networks in the automotive industry. It has maintained this centrality through connectedness to other worldwide centers of excellence in this industry, such as Germany and Japan. Its innovative links to Germany have been rising steadily over the last three decades, while its association with Japan began more recently, but also shows a steep upward trajectory.
Their research also unearthed a clearer picture of the shifting lines of American innovation. Today, Mudambi said, the Sun Belt features the country’s leading innovation hubs like San Francisco; Seattle; Portland, Ore.; Raleigh, N.C.; and Austin, Texas. Though the more traditional centers of innovation excellence in the Rust Belt cities have generally maintained healthy rates of innovation output, they have seen their shares of national innovative output decline. These include cities like New York, Philadelphia, Baltimore, and Chicago.
“In the 19th century and for most of the 20th century, the innovation hotspots were co-located with centers of manufacturing mass production,” Mudambi said. “These were concentrated in the Northeast, the Mid-Atlantic and the Midwest. That’s not the case anymore. We’re seeing the lion’s share of patents being registered in regions dominated by high-knowledge industries. These industries create mainly white-collar positions for people with a bachelor’s degree, at minimum.
“However, what Detroit’s innovative success says about economies everywhere is that the roots of innovation are very deep. Policymakers spend a lot of time worrying about manufacturing. But manufacturing can be very ephemeral and firms often relocate manufacturing plants with very little notice. Innovation is more deeply rooted and, once an innovation center roots itself in an area, it’s much more likely to stick.”
Mudambi said the ongoing iBEGIN research initiative is a collaborative effort, with professionals in centers around the world, including: Denmark’s Copenhagen Business School, Italy’s Politecnico di Milano and University of Venice Ca Foscari, the Indian School of Business, and many others.
In addition to studying innovation in American cities, iBEGIN has ongoing research exploring other contexts. These include country contexts like China, India, Brazil, Portugal, Greece and Korea as well as specialized industry contexts like automobiles, renewable energy and pharmaceuticals.
As the saying goes, “A group that works together, stays together.” Therefore, a group or community based on trust can reap benefits from one another. Trusting communities tend to foster self-employed people or entrepreneurs whose successes are one in the same with the community. Self-employment ranges from about 5.7 percent in areas with very low social trust to about 8.4 percent in areas with very high social trust.
Community Social Capital and Entrepreneurship, published in the American Sociological Review, examines the public good of what is called social capital — the relationship and networks of a group of people who live in and work in a particular community — to see how the benefits of social trust and organizational membership help not only the individual but also the community at large.
Seok-Woo Kwon, assistant professor in the Department of Strategic Management at Temple University’s Fox School of Business, started the research for this project 10 years ago with Colleen Heflin from the University of Missouri and Martin Ruef of Duke University.
“People have been researching a lot about the ‘If I have a lot of social capital, then I benefit from it,’” Kwon said. “For example, I get a better job, I get a quick job referral, or I have a higher chance of starting my own business. But I thought, what if I don’t have a high social capital but I’m surrounded by people who do. Their benefits are going to spill over to me.”
Kwon and his research partners tested their arguments about the communal benefits of social capital using data from the 2000 Census, Robert Putnam’s Social Capital Benchmark Survey and the National Opinion Research Center’s General Social Survey.
Their study suggests that the role social trust plays in entrepreneurship is crucial at the community level of analysis in two of the following ways: it encourages social groups to engage in the free flow of information and it helps small entrepreneurs to overcome a lack of recognizability.
Participating in voluntary associations produces social capital that benefits both the entrepreneur and the community. Because potential partners and customers for independent business owners are connected rather than isolated, they are encouraged to socialize and share ideas outside of their circles. Furthermore, these shared memberships between voluntary associations and organizations allow for the flow of word-of-mouth information.
There is a downside to this type of connectedness, however. Communities that are polarized by ethnic, political, religious or class differences tend to create homogenous organizations. Network expansion does not extend past the organization itself.
As the researchers were determining whether everyone receives an equal kind of spillover from neighbors, they found that that whites benefited from community social capital to a greater extent than minorities in the same community.
The same lack of spillover could also be seen among immigrants. This is for two reasons: immigrants have less individual-level social capital at the start than non-immigrants, and individual-level social capital is less generously compensated if a community social capital exists. This means that community-level social capital fails to spillover as much positive impacts and influences to marginal groups in the community, because some of these groups tend to be newer.
“The immediate, direct translation of this is that you’ve got to build a community with high social capital,” Kwon said. “That means building a community with a lot of trust, where people get to meet and socialize with each other. If you build that community, then everyone, not just a select few, benefits and can get information to start their own businesses.”
In spite of advances in transportation and communications, clustering remains most critical, and is consequently prevalent, in knowledge-intensive fields. Multinational enterprises (MNEs) that increasingly base their value creation and competitive advantage on knowledge-intensive activities are key participants in clusters, affecting both the nature and evolution of local innovative activities. This research traces the origins of research on geographic clusters, identifies the seminal contributions focusing on the role of MNEs, discusses potential problems inherent to this area of inquiry and develops an organizing framework for new research. There is a two-dimensional role of MNEs in knowledge clusters. From the perspective of the cluster, MNEs as flagship firms stimulate the local business environment and enhance agglomeration economies. As knowledge pipelines MNEs contribute to (and sometimes even form the genesis of) the external linkages of the cluster. From the perspective of the MNE, these firms clearly recognize clusters as the peaks in the “spiky” knowledge landscape of the host economy (i.e. valuable knowledge is distributed across geography), whose internal networks create both opportunities for new value creation as well as challenges in terms of the leakage of intellectual property. The integration of knowledge from multiple such local contexts is the key source of MNE competitive advantage.