Your innovation or mine? The effects of partner diversity on product and process innovation

Abstract

Despite a fundamental revolution in digital technology, along with an ancillary reduction in the cost of transmitting knowledge, the innovation literature on knowledge collaboration continues to hold on to the spatial localization of knowledge collaboration as a truism. Drawing on the open innovation literature and knowledge-based view of firm innovation, this study explores key boundary conditions affecting the relationship between research and development (R&D) collaboration breadth, and product and process innovation. Using a large-scale survey consisting of 25,813 observations of 14,784 firms in the United Kingdom during 2004–2020, we demonstrate that the breadth of knowledge collaboration with regional, national, and international partners directly affects product and process innovation. However, this relationship depends on the geographical location of the collaboration partner, the type of partner, and the firm's absorptive capacity. We found diminishing marginal returns to knowledge collaboration breadth for regional partners in product innovation, and an inverted U-shaped relationship in R&D collaboration breadth with regional partners for process innovation and for national and international partners for product and process innovation. While investment in digital technologies only shifts the curve upwards, it is unlikely to change the direction of the relationship between R&D collaboration and a type of innovation outcome. On the contrary, an increase in the share of science, technology, engineering, and math graduates enables firms to leverage the negative effect of R&D collaboration breadth nationally and specifically for process innovation. Investment in digital technology and human capital increases absorptive capacity and reduces the transaction costs associated with over-search and limited managerial capabilities and resources.