Press release

Silicon Envy: New Research from USC Marshall and Koc University Says Imitation May Invigorate the Leader

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The success of Silicon Valley has prompted governments worldwide to try
to emulate its success by fostering “silicon clusters” of their own. The
prevailing wisdom is that clusters in emerging markets “steal” from
Silicon Valley and other clusters in developed markets. Indeed such
thinking is partly behind political upheavals about job loss in the U.S.
and U.K. A recent study by Professor
Nukhet Harmancioğlu
, Turkey) and Gerard
J. Tellis
) suggest that this fear is grossly exaggerated
(Harmancioğlu, Nukhet and Gerard J. Tellis (2018), “Silicon
Envy: How Global Innovation Clusters Hurt or Stimulate Each Other across
Developed and Emerging Markets,”
Journal of International
Business Studies,
49, 7, December.)

In contrast to the received wisdom, Harmancioğlu and Tellis provide
strong evidence for reverse innovation stimulation from emerging to
developed clusters. Tellis emphasizes, “Emerging market clusters
stimulate rather than compete with developed market clusters.”

The authors examined 16 years (1999-2014) of monthly data on three
innovation metrics (startups, patents, and commercializations) in the
top 10 global innovation regions including both emerging clusters
(Silicon Plateau in Bangalore, Zhongguancun in Beijing, Silicon Island
in Taipei, Silicon Fen in Cambridgeshire, and Silicon Wadi around Tel
Aviv), and developed clusters (Shinjuku in Tokyo, Silicon Forest in
Seattle, Silicon Hills in Austin, Route 128 around Boston and Silicon
Valley). The authors found that the growth in innovation productivity of
emerging innovation clusters facilitates growth in developed clusters by
10% (while the reverse effect is 8.5%). What mechanism could account for
this reverse innovation stimulation?

The authors argue that individuals and/or firms do not take away
innovation knowhow and managerial skills when they leave a developed
cluster depriving it of that knowledge. “Rather, they take that
knowledge and embed it in every cluster wherein they relocate (including
emerging innovation clusters) allowing it to further flourish when
combined with local knowledge,” explains Harmancioğlu.

Resource complementarities may explain why rival emerging innovation
clusters stimulate rather than hinder developed clusters’ growth. The
firms located in emerging innovation clusters pursue market demand at a
global scale and create product technologies complementary to
those in these developed markets. Such complementarity may foster
collaborations with firms located in other emerging innovation clusters.
Local firms combine their local advantages (e.g., skilled labor, time
zone differences, and low-cost development capabilities) with their
ability to identify the connection-led sources of growth (e.g., unserved
demand and technical complementarity). While firms in developed clusters
set up research centers in emerging regions, other firms from developing
clusters (e.g., Infosys) establish offices in developed clusters (such
as Silicon Valley or Shinjuku) to exploit developed market
opportunities. The authors refer to this process as reverse innovation
stimulation. Through this process, leading specialist firms from
emerging innovation clusters contribute to the growth of developed
innovation clusters.

Another counter-intuitive finding is that emerging innovation clusters
also stimulate other emerging clusters’ growth. The reason is that
emerging innovation clusters focus on different but complementary
sources of regional advantage, such as hardware vs. software. “Hence,
emerging cluster interactions do not follow expected zero-sum
competition,” Tellis asserts. Nascent firms by nature concentrate their
technological resources and marketing effort on specific geographic
markets to avoid direct competition with other firms. “Different
technology foci, for example in China versus India, may also entail complementarity
regarding product technologies and marketing capabilities,” says
Harmancioğlu. This complementarity may lead these innovation clusters to
focus on different markets, avoid competition, and collaborate with each
other. For example, an increase in market demand for hardware may
increase demand for software or telecommunications service. Hence,
hardware patents issued in Beijing may stimulate compatible software
patents and commercializations in Bangalore.

Harmancioğlu and Tellis argue that the U.S. government and Silicon
Valley firms should see emerging innovation clusters not as perennial
threats but as partners in the global growth of high-tech innovations.
Tellis advises, “Developed national governments should embrace reverse
innovation stimulation as a source of cross-cluster fertilization for
growth.” The existence of complementary relationships among global
innovation clusters suggests different product and marketing strategies
than those that were appropriate under zero-sum competition.

Further findings are that talent mobility, private equity, and venture
capital are more influential on growth in innovation across clusters
than general economic conditions (such as GDP and interest rates).
Hence, policy makers should support the role of private equity and
foreign direct investment. Most importantly, governments should
encourage rather than restrict talent migration so that talent can
freely migrate to the cluster with the best strategic deployment,
employment match, and corporate returns. Governments may foster the
growth of talent pools in their countries by investing in advanced
degree programs, organizing international conferences, building
inter-scientist networks, and training future scientists. This process
may increase the number of inventors adopting boundary spanning roles in
inter-cluster networks.

For additional information, or to speak with the researchers, please
contact Matthew Simmons, USC Marshall Media Relations, at
or 213-821-9868.