Innovation through Long-distance Conversations? Experience from Offshoring-based Software Clusters in Bangalore, India

Abstract

In recent years, clustering has become the focus of debates on regional economic development among scholars and policymakers. Recent literature, particularly theoretical development in economic geography and regional economics, has expanded and built on Marshall’s classic theory of agglomeration economies (Fujita et al. 1999; Rosenthal and Strange 2004). The literature on agglomeration and clustering usually postulates that clustered firms and industries gain localized external benefits, such as increasing returns to scale, pooling of skilled labour and knowledge spillovers. Other authors stress that firms and industries in clusters benefit from regional innovation systems (RIS) or local innovation systems (LIS): that is, regions develop the ability to innovate, as various institutions in clusters closely interact, network and learn together (Breschi and Lissoui 2001; Breschi and Malerba 2001, 2005; Cooke 2001, 2005). One assumption underlying the various strands of this recent literature is that firms are more likely to innovate and create new knowledge when clustered (Porter 1990, 2000). The reasoning is that spatial proximity between firms facilitates their creation and exchange of tacit knowledge, which has become more and more crucial as codified knowledge has become easily replicable and ubiquitous (Cumbers and MacKinnon 2006).