Regional and global tensions in new product development: comparing high and low agglomeration regions

This paper is concerned with ways in which high technology firms develop new products in 'high‘ and 'low‘ agglomeration regions. The literature on the geography of innovation suggests that is dominated by a search for external factors that explain innovation in regions with high concentration of firms i.e. 'high agglomeration‘. Thus, external factors influencing innovation in low agglomeration regions are rarely studied. Moreover, traditional research has generally viewed innovation as a one dimensional construct, and expects the same set of factors to explain all kinds of innovation. The geography of new product development (NPD) as a specific type of innovation has not received much attention in the research community, despite its apparent importance in policy circles concerned with economic development. A framework is built in which small firms develop new products in two distinct environments: regions with local concentration of firms in high-tech industries (i.e. 'high agglomeration‘); and regions lacking concentration of firms in high-tech industries (i.e. 'low agglomeration‘). The framework allows for the categorisation of external influences on NPD as knowledge spillovers (referred to as non-market based external sources of knowledge), and as pecuniary knowledge (i.e. market based external sources of knowledge). The Silicon-Fen of Cambridge and Essex in United Kingdom (UK) are chosen as 'high agglomeration‘ and 'low agglomeration‘ regions, respectively. This selection is based on the two sub-regions above or below average densities of their workforce and firms in high-tech industries in the eastern region of the UK. Twelve pilot interviews were conducted to ascertain if potential differences exist between the two regions in small firms‘ perceptions of external knowledge. Thereafter, surveys of 52 SMEs in the Silicon-Fen and 48 in Essex electronic and software industries were carried out with a view to determining the nature of new product development in the two subsets. We found that small firms in low agglomeration regions can be characterised as 'imitator‘s when compared to those in high agglomeration. However, there are similarities in that small firms in both regions are more influenced by knowledge spillovers over pecuniary knowledge, and by international knowledge relative to local and national sources. The paper thus makes several contributions to the knowledge spillover theory of entrepreneurship, pecuniary externality theory and the literature on technological capabilities literature. The findings should also help regional policy makers located in both high and low agglomeration regions to understand the significance of 'spatial levels‘ - local, national or international - of analysis and decision making. From a business strategy perspective, a critical understanding of the sources of external knowledge - spillovers or pecuniary - are likely to influence new product development by small firms in their regions. This is crucial in an era in which 'geography‘ (especially that of regions) is seen as an integral part of innovation policy, and where new product and new business model development are seen as critical for firms as they struggle to stay alive and emerge from the recession. Implications are also drawn for educators and trainers especially those focusing on explaining different aspects of entrepreneurship and innovation.