Organizational Scope and Innovation Performance: Evidence from the US Semiconductor Industry

Abstract

While the knowledge-based view highlights the advantages of vertical integration for internal knowledge sharing, less is known about whether such advantages also extend to the leveraging of external knowledge spillovers for innovation performance. We study how a firm’s vertical scope affects its ability to leverage external knowledge spillovers associated with geographic clusters for innovation performance. Building on knowledge-based arguments we suggest that whether vertically specialized firms or vertically integrated firms benefit more from external knowledge spillovers in geographic clusters may depend on the cluster’s characteristics. Using a sample of 247 firms in the semiconductor industry between 1989 and 2002, we find that vertically specialized design firms are better than vertically integrated firms (design and fabrication) at leveraging external knowledge spillovers in clusters for innovation performance. We find that while vertically integrated firms benefit from the presence of other vertic...