Effects of geography and knowledge networks on firm survival

Mark Bagley, Postdoc at the Institute of Innovation and Entrepreneurship has recently published an article on Networks, geography and the survival of the firm.

The paper represents the last part of his PhD thesis, and fits into an overarching theme of spinoffs, industrial clusters, and the role of knowledge. The paper also represents a ‘sequel’ or follow-up to his prior paper, Small Worlds, Inheritance Networks and Industrial Clusters (published in Industry and Innovation) which examined the relationship between geography and knowledge networks. This paper on the other hand measures the effects of geography and knowledge networks on firm survival.

The article in short

Prior research has shown that the success of firms in industrial clusters is the result of two main reasons; the transfer of knowledge and routines from parent firms to spinoffs that locate in the same locality, and the returns from co-location of firms. While previous research has largely inferred the presence of parent-spinoff networks, few studies have measured them. Furthermore, the lack of geographic precision has led to conflicting results for evidence of returns from location, as the gains from geographic proximity may not always be linear.

This paper fills that research gap by introducing a network measurement and a refined geographic measure to separate these two respective channels of knowledge transfer, and analyzes their impact on firm survival (as a proxy for firm success). The subject of study was the Stockholm IT sector.

The result shows that the gains with respect to location are nonlinear. Furthermore, a firm’s historical links formed through parent-spinoff linkages have a significant impact on survival, which differ depending on the motivations of the entrepreneur. Moreover, these channels of knowledge are complementary in nature. The survival probabilities of new firms is heavily dependent on inherited knowledge and routines. The entrepreneur is a vector of this, and the knowledge and routines come from her prior firm. This effect on firm survival is accompanied by the returns from location. Thus, returns from co-location (i.e. industrial clustering) come about in a complementary fashion and not necessarily in isolation.

- Policy-makers, encouraging entrepreneurship-friendly policies, would benefit from the result of the study. New and successful firms are those that are rooted in the past, only they take an existing group of tried-and-tested ideas and innovate upon them. New products, introduced by new firms, add new value; and new value leads to economic growth both on the local and national level, says Mark Bagley.

Read the article

Link to the article: https://doi.org/10.1007/s00191-019-00616-z