Distributed R&D, Cross-Regional Knowledge Integration and Quality of Innovative Output

Abstract

We explore the impact of geographic dispersion of a firm's R&D activities on the quality of its innovative output. Using data on over half a million patents from 1,127 firms, we find that having geographically distributed R&D per se does not improve the quality of a firm's innovations. In fact, distributed R&D appears to be negatively associated with average value of innovations. This suggests that potential gains from access to diverse ideas and expertise from different locations probably gets offset by difficulty in achieving integration of knowledge across multiple locations. To investigate whether the innovating teams that do manage cross-fertilization of ideas from different locations achieve more valuable innovations, we analyze innovations for which there is evidence of such knowledge cross-fertilization along one of the followings dimensions: knowledge sourcing from remote R&D units, having at least one inventor with cross-regional ties, and having at least one inventor that has recently moved from another region. Analysis along these three dimensions consistently reveals a positive relationship between cross-regional knowledge integration and quality of resulting innovations. More generally, our findings provide new evidence regarding the importance of cross-unit integrative mechanisms for achieving superior performance in multi-unit firms.