Location, Decentralization, and Knowledge Sources for Innovation

When firms seek to innovate, they must decide where to locate their innovation activity. This location choice requires firms to make a simultaneous choice about the organizational structure of innovation activity: almost by definition, multiple locations per firm imply some degree of decentralization. We compare predictions of the knowledge‐based view with the predictions of organizational economics regarding the location and decentralization of R&D. Using firm‐level data on R&D locations in Finland, we examine the conditions under which firms with multiple R&D locations also have greater innovation output. Our results indicate that multilocation of R&D activity is positively associated with imitative innovation output and is strongly correlated with greater external knowledge sourcing. We also find that the positive association between multiple R&D locations and innovative output does not apply to new‐to‐the‐market innovations. The results are consistent with the interpretation that multilocation of R&D enables firms to access a broad set of external sources of knowledge in pursuit of imitative rather than new‐to‐the market innovation. Moreover, these findings imply heterogeneity in R&D strategies between firms pursuing new‐to‐the‐market innovation and firms pursuing imitative innovation. It is thus important to distinguish between new‐to‐the‐market and imitative innovations, because their determinants may differ.