Global Competitors as Next-Door Neighbors: Competition and Geographic Concentration in the Semiconductor Industry

Abstract

Despite the many advantages offered by technology clusters, firms located in them face the risk of losing valuable knowledge to nearby competitors. In this study, we argue that multi-location firms strategically organize their R&D activities to appropriate the value of innovations generated in clusters, mainly through three mechanisms: technological distance, value internalization, and control. Empirical analysis of the global semiconductor industry provides supportive evidence of such mechanisms. In clusters where direct competitors are right next door, leading firms generate innovations that are technologically distant from their neighbors, have more internalized value, and involve inventors from other geographic locations, particularly from headquarters. Interestingly, the strategies seem to be much more sensitive to neighboring firms competing in the same marketplace than those sharing the same technological space. The findings offer important insights into the interaction between firms’ internal organization and their external environment.