Networks and Innovation: The Role of Social Assets in Explaining Firms' Innovative Capacity

Abstract

The claim of a positive association between a firm's social assets and its innovative capacity is a widely debated topic in the literature. Although controversial, such an argument has informed recent innovation policy across Germany, increasingly directed to the cluster formation. In the light of the growing attention and financial efforts that cluster-based innovation policies are receiving, it is worth answering two main questions. First, are firms with a relatively high level of social capital likely to be more innovative? Secondly, do companies pursuing innovation in partnership innovate more? This paper empirically answers these questions by exploring a cross-sectoral sample of 248 firms based in the Jena region. On the one hand, the extent to which a firm is integrated in its community life does not contribute to an explanation of its innovative performance. On the other hand, directed cooperation with the specific goal of innovating shows a positive impact on innovative performance. However, the correlation between the extent of the network of co-innovators and firms' innovative capacity presents an inverted U-shaped relation: there is a threshold in the number of co-innovators justified by the costs of innovating by interacting. A policy lesson can be drawn from these findings: cluster-based policies are to be treated with caution as firms face costs of networking and not merely benefits.

Acknowledgements

We thank the VW-Stiftung in funding the project “2nd order innovation”, especially the position of Andreas Meder. We thank the DFG for funding the position of Andreas Meder when the VW project expired. We would also like to thank Marco Guerzoni, Post Doc at the Friedrich Schiller University Jena, for his valuable ideas and suggestions. The comments of two anonymous referees have gratefully been taken into account. The usual caveats apply.

Notes

External search breadth is “the number of external sources or search channels that firms rely upon in their innovative activities” (Laursen & Salter, 2006, p. 134). It is one of the independent variables considered in the study and created by simply adding up all the sources of innovative activities.

External search depth is “the extent to which firms draw deeply from the different external sources or search channels” (Laursen & Salter, 2006, p. 134).

The economic sectors included in the survey are: manufacturing, with limitation to those sectors having NACE code from 15 to 37, energy and water supplier (NACE code: 40 and 41), IT services (NACE code: 72), research services (NACE code: 73) and architecture, engineering and technical services as knowledge-intensive service provider (NACE code: 74).

The criteria adopted in this paper for classifying firms as small, medium or large are drawn from the Recommendation 2003/361/EC.

The Fraunhofer IOF of Jena is an institute for applied research in the field of opto-electronics and precision instruments.