No place like home? The embeddedness of innovation in a regional economy

Abstract

Two views have come to dominate the debate on the globalization of innovation in the emerging knowledge-based economy. The first contends that globalization reduces the significance of the home base as the primary site for innovation, as firms increasingly source and apply their innovations on a global basis. The second view as articulated in the innovation systems approach contends that the institutionally embedded nature of the innovation process, which is a central feature of the new economy, demands a continued, and even accentuated, role for the local context. In this article, we seek to contribute to the debate by evaluating the extent to which the institutional context and local setting play an important role in determining the innovative behaviour of manufacturing firms in Ontario, Canada. Specifically, we compare the practices of 242 indigenous and multinational establishments with respect to in-house technological capabilities, innovative processes, external sources of innovative ideas, and the nature and the extent of innovative inter-firm practices. Our findings indicate that indigenous firms are more likely to perform innovative activities locally and are more embedded in the Ontario economy than their multinational counterparts, as they exhibit higher R&D intensity, have a larger proportion of scientific, technical and managerial employees, adopt innovative inter-firm practices more extensively, and are more likely to source innovative ideas from local customers. The multinational establishments, in contrast, tend to exhibit lower R&D intensity, are more reliant on their inhouse marketing units, and continue to rely on their parent companies as a primary source for innovative ideas. These results suggest that local context still exerts a significant influence on the nature and extent of innovative activities in the knowledge-based economy.