Cluster network and innovation under transitional economies

Abstract

PurposeFirms in the same industry often display a striking propensity to agglomerate. These geographic concentrations significantly affect innovative behavior of individual firms and therefore have important strategic implications. The purpose of this paper is to report on how networks within the cluster influence firms' commitment to innovation.Design/methodology/approachEmploying a longitudinal case study approach data were collected for 2004 and 2007 about the Shaxi garment cluster in Zhongshan, China. A novel method of measuring innovative behavior was developed and tested at the level of individual small and medium sized enterprises, where R&D expenditure is not recorded, by measuring managerial perception of developments in three areas: product, process, and market development.FindingsThe extent to which related firms, various associations, and government policies affected the individual firm's propensity to innovate was examined. The main findings of this paper show firm‐level commitment to innovation is significantly stimulated by three groups of factors: competitor action and cooperation in the supply chain, membership of various government and industry associations and government stimulus policies in the cluster. The relative significance and nature of these influences do change over time.Originality/valueDisincentives to firm innovation were also found, such as knowledge spillover between competitors, leading to free rider problem, weak intellectual property right protection leading to imitation, and underground economy in the cluster resulting from weak implementation of regulation compounded by the difficulties of effectively policing regulation. These factors appear to be particularly strong in a developing economy.