Sunday, February 5, 2017

The Location of a Business Influences its Growth Potential

What advantages does close proximity of businesses have for product and firm development? According to a study conducted on the Hsinchu District in Taiwan, close proximity results in knowledge spin-offs as a result of people moving and sharing of knowledge between firms. Proximity influences innovative development in technology firms in a way that creates synergy and higher growth (Hu, Lin, and Chang, 2005). Proximity also increase the likelihood that products will move from the conception to production stages.

Innovation is a messy process where knowledge interacts with available resources in a way that leads to new product development. A significant portion of this growth rests on a person's social networks and the ideas those networks generate. Social learning becomes part of the process of how tightly woven clusters develop to overcome market challenges. 

"the close spatial clustering of technology firms favour repeated knowledge agent spinoffs and high-tech personnel mobility that then clearly influence the innovative activity of technology-based firms (Hu, Linand Chang, 2005)." 

As skilled people move from one company to the next they carry with them product development lessons in a additive manner. They can apply this knowledge to their new jobs in ways that connect corporate intellectual capital. Within their networks companies share information and build off of ideas through social construction that results in developmental synergy. 

While some industry knowledge seeps across international borders the highest states of development occurred with the confines of local clusters. Proximity in this case was an important catalyst to growth. A business that wants to succeed in a particular industry should consider the merits of working next to other businesses to soak in their innovative development.

As an added bonus, clusters made the movement from product conception to mass production more likely. It was a function of how closely they interacted to increase likelihood. When inventors and builders interact together at social clubs, restaurants, bars, and sports lounges things start to happen. Walking across the street and handing an engineer a set of plans can make a big difference. 

The study helps us understand that proximity and social interaction in places like the Hsinchu District of Taiwan produce opportunities for innovative synergy that results in new product development. When clusters are designed with innovative growth in mind, proximity should be a major consideration to help them associate through formal and informal channels. Highly skilled technology workers socialize with other like-minded individuals and share knowledge and resources in an informal manner. They also switch to new companies and carry that knowledge with them. Great minds working in the same are seem to have an additive process to get their creative juices flowing.

Hu, T. ,  Lin, C. and Chang, S. (2005). Role of Interaction between Technological Communities and Industrial Clustering in Innovative Activity: The Case of Hsinchu District, Taiwan. Urban Studies, 42, (7), 1139–1160.

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