Inter-European Regional Dispersion of Corporate Research Activity in Information and Communications Technology: The Case of German, Italian and UK Regions

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Inter-European RegionalDispersion of CorporateResearch Activityin Information andCommunications Technology:The Case of German, Italianand UK RegionsGrazia D. Santangelo

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To cite this article: Grazia D. Santangelo (2000): Inter-European RegionalDispersion of Corporate Research Activity in Information and CommunicationsTechnology: The Case of German, Italian and UK Regions, International Journal ofthe Economics of Business, 7:3, 275-295

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ISSN 1357-1516 print/ISSN 1466-1829 online/00/030275-21 � 2000 Taylor & Francis Ltd

International Journal of theEconomics of Business, Vol. 7, No. 3, 2000, pp. 275± 295

The author is thankful to Professor John Cantwell for having provided the data that this paper is basedon. Needless to say, the end product is the author’s own responsibility.Grazia D. Santangelo, Facolta’ di Giurisprudenza, Universita’ degli Studi di Catania, Via Gallo 24, 95124

Catania, Italy; e-mail: [email protected] .

Inter-European Regional Dispersion of Corporate

Research Activity in Information and

Communications Technology: The Case of German,

Italian and UK Regions

GRAZIA D. SANTANGELO

ABSTRACT The increased geographical dispersion of corporate research seems toemphasize the significance of the local dimension over the pace of technologicaldevelopment. However, although a large number of studies have focused on intra-borderanalysis in the US, the European regional dimension has been explored only recently dueto the lack of data availability. This paper investigates the regional dispersion of European-owned ICT research activity across German, Italian and UK regions. The empirical resultssuggest that locally embedded value added and the subsequent localised knowledge spilloversstemming from it are promoting spatial agglomeration economies, which generatecompetitive corporate advantage based on untraded externalities.

Key words: ICT; Corporate research and development; European regions.

JEL classification: O3, F23, R1.

1. Introduction

In the new socio-techno-economic paradigm, although time and space constraintshave been reduced or (in some cases) completely eliminated by the pace oftechnological development, paradoxically geography seems to matter more thanever before. On the one hand, the shift towards a knowledge-based economyinvolves a shift in organisation away from top-down hierarchical infrastructures toflatter structures based on intra-firm networks of semi-autonomous corporatesubsidiaries (Amin and Thirft, 1995; Archibugi and Michie, 1995; Cantwell, 1995;Zander, 1998; Stiglitz, 1999). On the other hand, the increasing globalisation ofeconomic activity has emphasized the importance of clusters of innovative localcentres over time accumulating new knowledge embodied in best practises (Aminand Goddard, 1986; Knox and Agnew, 1989; S Èolvell and Birkinshaw, 2000).

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276 G. D. Santangelo

Therefore, the higher the level of corporate internationalisation, the stronger thelinks that the firm establishes with the local system. If this is a general trend acrossindustries, it applies particularly to science-based industries (e.g. information andcommunications technology ± ICT), where links between corporate competitors,and firm± university and user ± producer relationships are crucial in the developmentand adoption of new flexible technologies (Malecki, 1985; Oakey and Cooper,1989; Oakey, 1985). In the case of science-based and related industries (e.g. ICT),local networks and infrastructures may promote the potential for knowledgecreation and learning. The point is illustrated in the case of the New Jerseytelecommunications industry (Wymbs, 1998), Silicon Valley computer industry andRoute 128 (Saxenian, 1994; McCann, 1995; Storper, 1997; Scott, 1988).

In this context, the reason for a spatial analysis at the regional level lies in the factthat nation-state investigations are likely to neglect intra-border inequalitiesbetween regional economic units. If, at country-level, empirical studies have shownhigh levels of heterogeneity in the accumulation and diffusion of technology(Cantwell, 1987; Archibugi and Pianta, 1992; Padoan, 1997), at regional level thesituation is even more heterogeneous in terms of both GDP growth (Champion etal., 1996; Fagerberg, 1996; Iammarino et al., 1998; Iammarino and Santangelo,1998; Magrini, 1998) and technology development (Cowan and Foray, 1996;Cantwell and Iammarino, 1998, 1999). Although great emphasis has been placedon the role of geography in explaining local and corporate innovation, research hasmainly focused on the US regions (e.g. Jaffe et al., 1993; Audretsch and Feldman,1994; Feldman, 1994). Conversely, the focus on the European regional dimensionin the development of innovation is rather recent.

In an analysis of the spatial dimension of innovative activity across Europeanregions, the European integration process should be taken into account. QuÂevit(1996) argues that the completion of the Single European Market (SEM) togetherwith global economic and technological changes impact on the performance ofEuropean regions. The first empirical results seem to point out that incomedisparities may owe their existence to the process of knowledge specialisationbetween ̀ knowledge-creating’ and ̀ knowledge-applying’ regions and that they havebeen exacerbated by European Union (EU) integration (e.g. Magrini, 1998). Thelocation of large MNCs seems to reinforce the top of the national urban hierarchies.A reason for this trend has been found in the European failure to take advantage ofthe opportunities offered by the new techno-socio economic paradigm (Begg et al.,1999). The pervasive character of ICT is provoking a transformation in urban andregional systems by generating a new network model involving core regions andneglecting the periphery (Hepworth, 1986; Malecki, 1994; Antonelli, 1995;Castells, 1985). Therefore, as technological change affects not only the long-termgrowth of economies but also the spatial distribution of economic activity, aconcentration phenomenon has emerged (Feller, 1975). The crucial role ofinnovation in boosting local economies has been recognised in the EU regionalpolicy. In order to account for this new techno-socio-economic condition, the EUhas implemented its own regional policy, which, articulated through the StructuralFunds’ action,1 aims at economic and social cohesion across the Union (as officiallystated in the Treaty on European Union).

In this context, the aim of this paper is to analyse the dispersion/concentrationof ICT corporate innovative activity within the European ICT industry acrossGerman, Italian and UK regions. The starting-point of the analysis is the resultobtained in a previous study (Santangelo, 1998), where clusters of European

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Regional Dispersion of Corporate Research Activity 277

electrical companies specialising in the same ICT technologies were identified overthe period 1969 ± 1995. On these grounds, the present study aims to test thefollowing hypothesis.

Hypothesis: in each of the three sub-periods under analysis (1969 ± 77,1978 ± 86 and 1987± 95) the identified technological clusters of companiesgrouped together as specialising in the same ICT technology (co-specialisation) also locate the related research and development (R&D) inthe same region (co-location). In other words, it is tested whether co-specialised European electrical companies co-locate investments in theICT field of technological co-specialisation in the same Europeanregion.

The paper is organised in six main sections. The following section exposes thecomplementarity of the global and local dimension in corporate activity. Section 3describes the data used. Section 4 discusses the general trends in the location ofICT corporate research activity in the European regions under analysis. Theempirical evidence on the hypothesis of co-location and co-specialisation ispresented and discussed in Section 5. Conclusions are drawn in Section 6.

2. `Global’ versus `Local’: A Complementary Relationship

The growing economic globalisation seems to have emphasized the importance ofthe local dimension in both corporate production and research activity. Theunderstanding of globalisation proposed in this paper embraces a wider dimensionthan the one evoked by prefixes to the word national such as inter-, multi- or trans-.The term globalisation is here adopted to indicate the increasing geographicaldispersion of intra-firm networks across a large number of locations and theconsequent interdependency between the units which constitute the MNCs. Theestablishment of geographically dispersed networks allows the transfer of technol-ogy, skills and assets across national borders between the parent company and thesubsidiaries. The sustainable competitive advantage built on this transfer lies in thetwo-way interaction between parent and subsidiaries. The transfer goes from theparent to subsidiaries, but also from the subsidiaries to the parent company. Locallaboratories play a new role within the whole corporate structure by sourcing newknowledge from the local environment rather than carrying out mere supply-oriented activities (Papanastassiou and Pearce, 1994; Bartlett and Ghoshal, 1995).Therefore, corporate activity is more and more sensitive to localised cumulativeprocesses as multinationals aim to outsource knowledge by tapping into localexpertise.

Following the `new economic geography’ view (e.g. Krugman, 1991a, b),2

increasing returns are essentially a regional and local phenomenon arising fromregional economic agglomeration and specialisation. In this sense, the globalisationphenomenon has emphasized the importance of sub-national local entities (e.g.regions), which shape corporate spatial organisation according to the different typesof indigenous agglomeration forces. On the one hand, the localisation of newcorporate units is driven by general external economies and spillover effectsattracting all kinds of economic activities in certain regions. This process promotesthe spatial concentration of different economic activities as well as the emergence ofregional cores. On the other hand, the localisation of the new corporate units is

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driven by sector-specific economies and spillover effects attracting certain economicactivities according to the indigenous sectoral specialisation. The interactionbetween general external economies and localisation economies generates ageographical hierarchy of regional centres as empirically shown in recent studies(Cantwell and Janne, 1999; Cantwell and Iammarino, 1998, 1999; Iammarino etal., 1998; Iammarino and Santangelo, 1999).

This hierarchy appears to be stable over time as a result of cumulative causationmechanisms promoting vicious and virtuous circles and reinforcing geographicalinequalities. A strong path-dependent character is found in the local ability todevelop an entrepreneurial environment through expertise accumulation. Thesuccess of the l̀earning’ region relies on the capability of mobilising technicalresources, knowledge and other inputs essential to innovation (Amin et al., 1994;Feldman and Florida, 1994). Localised higher value added rather than reduction oftransaction costs and cheap labour seem to be the variable explaining economicagglomeration and performance. Manufacturing, human, physical and communica-tions, and industrial governance infrastructures (Florida, 1995, 1996; S Èolvell andBengtsson, 2000) are key factors defining the `knowledge-based’ or l̀earning’region, able to maintain its sustainable advantage over time. Since, in the globalarena, host locations are competing in order to attract MNCs’ quality investments,Howells (1999) remarks that regional systems of innovations do not undermine theglobalisation process in terms of production and diffusion of technology but ratherthey reinforce it. Therefore, `global’ and l̀ocal’ seem to be complementarydimensions in the context of economic globalisation.

3. The Data

In this paper, corporate geographical distribution of ICT technological develop-ment across Europe over the period 1969 ± 1995 is investigated by adopting USpatent data drawn from the University of Reading database. The use of patenting ina common third country ± i.e. the US ± allows a more reliable internationalcomparison on a similar basis. Furthermore, foreign patents (e.g. European) areexpected to be of a higher quality than domestic patents (i.e. US) as it is reasonableto assume that only inventions and innovations with highest expected profits will bepatented abroad due to the time and cost involved in so doing. Advantages anddisadvantages of patent data are well known in the literature (see Pavitt, 1985;Griliches, 1990) and will not be discussed further here. However, it should bepointed out that in an analysis of ICT, a major problem in using patent data mightbe that software innovations have started to be patented since the mid± 1990s.Nonetheless, for the purpose of the present study, this is not a major issueconsidering the weak European performance in software technology by comparisonwith US competitors (Malerba et al., 1997). For the purpose of the present paper,it is worth noting that the patent document records the address of both inventor andowner of the invention. In other words, the location where the R&D activity wascarried out and the location of the headquarters of the company to which the patentis assigned is provided by the patent records. Therefore, it is possible to identifygeographically the location where the R&D activity underlying the invention wascarried out. Moreover, the patent document information allows one to consolidatepatents into corporate groups on the basis of the structure of ownership.3

In the Reading database, each patent is classified by the type of technologicalactivity with which it is primarily associated. The 399 original classes in this way

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identified by the US Patent and Trademark Office can be further grouped into 56technological sectors, of which six sectors comprise the main field of ICT.4 The dataused refer to all 23 European firms classified in the broad electrical corporateindustrial group in the database held at the University of Reading. For the purposeof this paper, the empirical analysis was carried out at the level of the original 399technological patent classes by selecting those which correspond to the six ICTtechnological sectors.5 The broad electrical corporate industrial group includes theelectrical equipment (communications) and the office equipment (computing)industries.6

The spatial analysis of the corporate research activity in the European ICTindustry is carried out at sub-national level. The geographical distribution ofEuropean electrical corporate patenting activity in the ICT technological sectors isinvestigated in Germany, Italy and the UK, for which regionalised patent data arecurrently available in the Reading database. For each of these three countries, thesub-national entities identified correspond to territorial units as classified by theEuropean Nomenclature of Territorial Units of Statistics (NUTS) nomenclature. Inorder to ensure as much comparability as possible, the NUTS 1 level is used toidentify German and UK regions, while, as far as Italian regions are concerned, theNUTS 2 level is adopted. As pointed out by Eurostat (1995), despite the aim ofensuring that comparable regions appear at the same NUTS level, each level stillcontains great differences among the territorial units identified in terms of area,population, economic weight or administrative power. Therefore, the 16 Germanl Èander, the 11 UK standard regions and the 20 Italian regioni seem to guaranteegrounds of comparability as far as innovative activity is concerned (see Table A3 inthe Appendix).7

4. General Trends in the Location of ICT Corporate Research Activity in

German, Italian and UK Regions

Before investigating whether the technological co-specialised groups of firmsidentified in the study referred to above (Santangelo, 1998) are co-located in theregions under analysis, it is worth considering the significance of German, Italianand UK regions in the overall geographical distribution of European electricalresearch in ICT.

As reported in Table 1, in Europe almost half of the European R&D investmentsin ICT by European electrical companies are located in the regions under analysis.This confirms Cani Èels’ (1998) findings of a high geographical concentration ofinnovative activity in a few European regions, as well as Verspagen’s (1997)argument for the existence of European `regional clubs’ . The heterogeneitycharacterising what Caracostas and Soete (1997) name as the European System ofInnovation in terms of regional performance may be identified as a major factorexplaining high concentration of innovative activity in a few regional locations.Inter-national and inter-regional technology gaps are the results of historicallydifferent approaches to investments in technology. On the one hand, myopicsystems (either national or regional) treat investments in technological activities justlike any conventional investment; on the other hand, dynamic national and/orregional systems place great emphasis on the development and accumulation ofintangible assets (Patel and Pavitt, 1996). In this sense, uneven technologicaldevelopment and consequent economic performance is due to the cumulative andlocalised character of technology (Cantwell, 1994). Therefore, the emergence of

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`higher’ and ̀ lower’ order regions relies on the local ability in developing a regionalsystem of innovation. If at the European level European-owned ICT research ishighly concentrated, within German, Italian and UK regions it appears to be evenmore polarised in fewer locations. Table 1 also illustrates that Bayern and South East(UK) together account for 30% of the total European-owned research in ICTsectors carried out in European regions between 1969 and 1995. This great

Table 1. Distribution of US patents attributed to European electrical companies in all ICTtechnological sectors relative to Europe (%), by region, 1969± 95

Region No. ofEuropeanelectrical

firms

Share ofhome

research

Share ofEuropean host

research

Bayern (G) 20.4% 9 91.0% 9.0%South East (UK) 9.9% 13 67.0% 33.0%Baden-Wurttemberg (G) 3.2% 7 39.0% 61.0%Niedersachsen (G) 1.8% 7 39.0% 61.0%Schelswig-Holstein (G) 1.6% 5 55.0% 45.0%Hamburg (G) 1.4% 4 1.0% 99.0%Lombardy (IT) 1.2% 7 12.0% 88.0%Nordrhein-Westfalen (G) 1.2% 4 37.0% 63.0%Piedmont (IT) 1.2% 6 94.9% 5.1%Hessen (G) 1.0% 9 35.0% 65.0%North West (UK) 1.0% 6 87.0% 13.0%East Midlands (UK) 0.8% 7 99.0% 1.0%West Midlands (UK) 0.7% 4 96.0% 4.0%East Anglia (UK) 0.7% 7 25.0% 75.0%South West (UK) 0.6% 4 92.0% 8.0%Berlin (G) 0.5% 6 65.0% 35.0%Rheinland-Falz (G) 0.3% 6 57.0% 43.0%Scotland (UK) 0.1% 5 95.0% 5.0%Yorkshire & Humberside (UK) 0.1% 1 86.0% 14.0%Bremen (G) 0.1% 7 0.0% 100.0%Wales (UK) 0.1% 1 77.0% 23.0%Sicily (IT) 0.1% 3 0.0% 100.0%Emilia Romagna (IT) 0.1% 2 60.0% 40.0%Thuringen (G) 0.1% 3 87.0% 13.0%Brandenburg (G) 0.1% 3 28.0% 72.0%North (UK) 0.1% 3 88.0% 12.0%Friuli-Venezia Giulia (IT) 0.1% 2 100.0% 0.0%Lazio (IT) 0.1% 3 0.0% 100.0%Mecklenburg-Vorpormmen (G) 0.0% 2 40.0% 60.0%Tuscany (IT) 0.0% 1 60.0% 40.0%Sachsen-Anhait (G) 0.0% 1 100.0% 0.0%Sachsen (G) 0.0% 1 100.0% 0.0%Calabria (IT) 0.0% 1 0.0% 100.0%Liguria (IT) 0.0% 1 0.0% 100.0%Campania (IT) 0.0% 1 0.0% 100.0%Total (German regions only) 31.7% 11 72.6% 27.4%Total (Italian regions only) 2.8% 6 43.1% 56.9%Total (UK regions only) 14.0% 12 66.2% 33.8%Total (German, Italian and UK regions) 48.5% 69.0% 31.0%Total (all other European regions) 51.5%

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polarisation identifies these two regions as `higher’ order locations in thedevelopment of innovative activity.

To explore further the terms under which this technological polarisation occurs,Table 1 ranks German, Italian and UK regions on the grounds of the percentage ofEuropean ICT technological activity located in each of them relative to Europe overthe period 1969 ± 1995. The table also reports the relative share of ICT researchactivity carried out by home and European host electrical multinationals.

As expected, Bayern and South East (UK) emerged as the centres of excellencein the technological development of ICT. German regions are on average at the topof the hierarchy. Baden-W Èurttemberg, Niedersachsen Schleswig-Holstein, forinstance, are all top-ranked. As far as UK regions are concerned, South East (UK)stands out among all others. Similarly, Lombardy is highly placed among the Italianregions. Surprisingly, Sicily is the third Italian region after Lombardy andPiedmont, although accounting for only small percentages of the European total.This may suggest that regional policy has been more successful than in othersouthern Italian regions in attracting significant foreign investments in R&D.

A more detailed picture of the geographical distribution of ICT research acrossthe European regions under analysis is drawn in Table 2. For each ICTtechnological sector, Table 2 ranks German, Italian and UK regions on the groundsof the European-owned research developed.

Two main findings emerge. First, ̀ higher’ order regions are confirmed across ICTsectors. This is the case of Bayern and South East (UK), which are top-ranked in anyof the ICT technological sectors. Second, in each of these sectors, differences inranking seem to suggest a distinction between general external economies (e.g.Bayern, Baden-W Èurttemberg, Niedersachsen and Schleswig-Holstein in Germany,Lombardy in Italy, and the South East (UK) and East Anglia in the UK) andlocalisation economies (e.g. Nordrhein-Westfalen, Hessen and Rheinland-Pfalz inGermany; North West, Piedmont in Italy; and the West Midlands and South West theUK), when also taking into account the whole regional economic activity.8 In the caseof general external regional economies, indigenous and foreign economic activity isspread over a large number of sectors. Conversely, in localisation economies, foreigncompanies target the sectors of indigenous specialisation. This seems to be confirmedin Table 2, where, while the former always appear to host some percentage of R&D inany of the ICT fields, the latter may be well ranked in some fields and bottom rankedin others according to their sector-specific specialisation. To illustrate the case,European electrical corporations locate some R&D in Baden-W Èurttemberg,Lombardy and East Anglia (although the percentages may vary) in any of the ICTsectors. Conversely, European electrical firms are not attracted at all, for instance, inSouth West in ̀ telecommunications’ and in Rheinland-Falz and Piedmont in ̀ specialradio systems’ . Therefore, as far as the European ICT industry is concerned theexistence of `knowledge-creating’ and `knowledge-applying’ regions are confirmed,over the period under analysis. In this sense, it is crucial to distinguish between`agglomeration economies’ , based on inter-sectoral co-location, and l̀ocationeconomies’ , built upon intra-sectoral corporate co-location (McCann, 1995).

5. The Regional Distribution of ICT Technological Development: DoesCorporate Technological Co-specialisation Imply Co-location?

In order to analyse whether the technological groups identified in the study referredto above (Santangelo, 1998) in each of the three sub-periods ± 1969 ± 77, 1978 ± 86

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Ta

ble

2.

Dis

trib

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on

of

US

pat

ents

att

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d t

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uro

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n e

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s in

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T t

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no

logi

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sect

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rel

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e to

Eu

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e ( %

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T s

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9±

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Tel

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Oth

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un

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ion

ssy

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sS

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ial

rad

io s

yste

ms

Bay

ern

(G

)26

.9%

Bay

ern

(G

)22.1

%S

ou

th E

ast

( UK

)23

.9%

Sou

th E

ast

( UK

)8

.1%

Sou

th E

ast

( UK

)14

.8%

Bay

ern

(G

)9

.1%

Bad

en-W

urt

tem

ber

g ( G

)3

.1%

Bad

en-W

urt

tem

ber

g ( G

)2.8

%B

aden

-Wu

rtte

mb

erg

( G)

1.8

%N

ied

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chse

n (

G)

2.1

%N

ied

ersa

chse

n (

G)

2.6

%E

ast

Mid

lan

ds

( UK

)1

.3%

Nord

rhei

n-W

estf

alen

(G

)1

.2%

Nort

h W

est

( UK

)2.1

%S

ou

th W

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( UK

)1

.3%

Eas

t A

ngl

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UK

)1

.1%

Pie

dm

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t ( I

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1.9

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(G

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Wes

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1.0

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1.4

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An

glia

(U

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0.6

%E

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Mid

lan

ds

( UK

)0

.9%

Sch

elsw

ig-H

ols

tein

(G

)1

.3%

Nord

rhei

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(G

)0

.4%

Ham

bu

rg (

G)

0.8

%W

est

Mid

lan

ds

( UK

)1

.0%

Nie

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sach

sen

(G

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Pie

dm

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t ( I

T)

0.8

%N

ord

rhei

n-W

estf

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(G

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Nort

h W

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( UK

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Hes

sen

(G

)0

.7%

Eas

t M

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s ( U

K)

0.8

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est

Mid

lan

ds

( UK

)0

.2%

Nort

h W

est

( UK

)0

.7%

Sou

th W

est

( UK

)0

.8%

Wal

es (

UK

)0

.2%

Lom

bar

dy

( IT

)0

.6%

Hes

sen

(G

)0

.7%

Sco

tlan

d (

UK

)0

.2%

Rhei

nla

nd

-Fal

z ( G

)0

.5%

Ber

lin

(G

)0

.5%

Bra

nd

enbu

rg (

G)

0.1

%S

chel

swig

-Hols

tein

(G

)0

.5%

Eas

t A

ngl

ia (

UK

)0

.5%

Bre

men

(G

)0

.1%

Ber

lin

(G

)0

.3%

Sco

tlan

d (

UK

)0

.5%

Hes

sen

(G

)0

.1%

Wal

es (

UK

)0

.2%

Bre

men

( G)

0.4

%T

hu

rin

gen

(G

)0

.1%

York

shir

e &

Hu

mb

ersi

de

( UK

)0

.2%

York

shir

e &

Hu

mb

ersi

de

( UK

)0

.3%

York

shir

e &

Hu

mb

ersi

de

( UK

)0

.1%

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Regional Dispersion of Corporate Research Activity 283T

ab

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and 1987± 95 ± are co-located in the regions under analysis, for each of the firms inthe clusters an intra-firm cross-region RTA index was calculated at the level of theICT patent classes9 as a proxy for the geographical division of labour within thefirm. For each European electrical firm (i), the index is defined as the share of USpatents granted in region (r) in a patent class (c) relative to the firm’s total numberof US patents granted in the same patent class in all European regions divided bythe share of patents granted to the same firm (i) in the same region (r) in all ICTpatent classes considered relative to all patents granted to the same firm (i) in allEuropean regions in all ICT classes considered. Thus, the index can bemathematically formalised as:

RTAi rc = (Pirc/SrPirc)/ (ScPi rc/SrScPirc) (1)

where Pirc is the total number of patents granted to firm (i) in region (r) in apatent class (c). It is worth emphasising that r is defined in terms of German, Italianand UK regions only in the numerators and in terms of all other European regionsin the denominators. As the index is a comparative measure, high (low) values ofRTAirc indicate corporate advantage (disadvantage) in locating research activity in aspecific patent class in the region in question. Therefore, the index enables one toevaluate for each European electrical firm the significance of the regional location ina patent class in Europe relative to the significance of the same region in all ICTpatent classes considered in Europe.

The analysis moves further by testing whether co-specialised firms co-locatetheir research activity in the technological fields of co-specialisation on the groundsof the intra-firm cross-region RTA index. The criterion adopted to identify eventualco-locations of corporate co-specialised research in ICT requires that, in each of thethree sub-periods, at least 50% of the firms in each technological cluster shows thehighest RTAirc value in the patent class, upon which the cluster is built, in the sameregional location, and that this regional location is common to all other firms in thecluster.

Figure 1 illustrates the ICT European-owned corporate groups which werefound specialised in the same technological classes (see Santangelo, 1998). In thepresent study, technological clusters of firms found co-located are reported in a greybackground.

Before going onto the discussion of the results, it is worth highlighting that in thesub-period 1969 ± 77, 10 out of 15 firms in the clusters locate R&D in the ICTpatent classes of co-specialisation in the regions under analysis; 14 out of 17, in thesub-period 1978 ± 86; and 16 out of 18 in the sub-period 1987± 95. In the first sub-period, one cluster out of six is co-located, one out of seven in the second, and twoout of nine in the last. In all sub-periods, clusters C, C1 and C2 are located in theSouth East (UK). The reason may be that the patent class/es upon which theclusters are built can be aggregated in the technological sector s̀pecial radiosystems’ , in which the UK attracts a greater percentage of foreign Europeancompanies by comparison with Germany and Italy as illustrated in Figure 2. Thismay suggest a strong indigenous technological expertise in the sector in question,which creates a comparative advantage for the UK relative to German and Italianlocations.

The choice of the South East (UK) as regional host location of corporatetechnological clusters C, C1 and C2, may well be attributed to the agglomerationof economic activities based on general urbanisation economies. In the last sub-

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Figure 1. European electrical firms specialised in the same patent class/es and located in thesame region (reported in grey background), by sub-period, 1969± 95.

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period (1987± 95), the South East (UK) seems also to host the cluster B2.2, builtupon patent classes that can be aggregated in the technological sectors `tele-communications’ and s̀pecial radio systems’ . Although the co-location patternappears to be driven by the UK attractiveness for ̀ special radio systems’ , it may wellbe the case that the South East (UK) emerged as an appealing location for R&D int̀elecommunications’ in the late 1980s± early 1990s (as shown by the recentinvestments in the region).

Therefore, the average trend is that electrical firms specialise in the same patentclass/es, although their R&D in the class/es in question is carried out in differentregional locations. However, R&D activity in the ICT field as a whole, as well as ineach of the six ICT technological sectors (Tables 1 and 2, respectively), seems to beconcentrated in a few regional centres of expertise (e.g. Bayern and the South East(UK)), where regional institutions and culture, social division of labour and internalfirm organisation are the main competitive advantages. This may suggest thatEuropean electrical companies concentrate their research in specific regionallocations to benefit from untraded externalities, which may well go beyond intra-industry knowledge spillovers as in the Marshall ± Arrow± Romer (MAR) model,involving inter-industry and university knowledge spillovers (Feldman, 1993;Audretsch and Feldman, 1994; Audretsch and Stephan, 1994; Anselin et al., 1997;Audretsch, 2000). As Feldman and Audretsch (1999) argue, diversity acrosscomplementary industries showing a common base is a source of greater innovationpotential. Therefore, if inter-sectoral geographical links are important within thesame industry (Swann and Prevezer, 1996; Baptista and Swann, 1998), they appearto be crucial between industries (Jaffe et al., 1993; McCann, 1995; Audretsch andFeldman, 1996; Blomstr Èom and Kokko, 1996; Malmberg, 1996; Bopp and

Figure 2. Share of research activity carried out in the ICT sectors by European foreignelectrical companies and located in the three countries under analysis relative to Europe as

a whole, 1969± 95.

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Gordon, 1997; Storper, 1997). Knowledge externalities in industries based on neweconomic knowledge are crucial. In this sense, additional increases in concentrationof production of innovative activity seem to lead to greater dispersion of innovativeactivity as new ideas need new space (Audretsch and Feldman, 1995). FollowingCamagni (1988), this seems to be all the more true in the current techno-socio-economic paradigm where the creation of spatial synergies is amplified by the newcomplex technologies adopted. In this context, MNCs link together the localisedprocesses of knowledge by ranking different centres when selecting their locations(Malmberg et al., 1996).

However, if the impact of corporate activities is recognised, there is still room forpolicy in infrastructure and education in order to facilitate the process of localgrowth through FDI strategies. On the host region perspective, Vence-Deza (1996)places great emphasis on the importance of diversity and complementarity inboosting local expertise in lagging regions. The magnitude of spillover effects largelydepends on local capability and competition which generate local higher valueadded (e.g. concentration of labour skills and linkage advantage). This case is clearlyillustrated in Silicon Valley and Route 128, where urban industrial clusters generateinter- and intra-industry externalities, which are enhanced by proximity to earlyusers. However, knowledge still flows more smoothly within national borders asknowledge spillovers occur more easily between regions with similar or com-plementary specialisation. In this sense, the European System of Innovation ischaracterised by several centres (which are not contiguous), where innovativeactivity is polarised especially in high-tech sectors (CaniÈels, 1998).

6. Conclusions

This paper investigates whether the clusters of European electrical companiesidentified in a previous study (Santangelo, 1998) develop technological innovationin the patent classes of common specialisation in the same regional location. It alsoprovides some preliminary empirical evidence on the spatial development of ICTresearch activity in the European electrical industry at regional level in the locationsunder analysis.

In analysing whether co-specialisation occurs simultaneously in the Europeancorporate development of ICT technologies, it was found that European electricalcompanies do not locate research activity in the fields of co-specialisation in thesame region. However, they seem to concentrate geographically their R&D in ICTtechnologies. The findings seem to suggest that companies co-locate their researchactivity in order to enjoy untraded externalities and complementary diversity. Thelocation of R&D laboratories in a dynamic regional environment enables the wholeMNC to source a broad knowledge complementary to its technological path.Therefore, MAR spillovers do not seem to be a decisive factor influencing corporatelocation strategies. Conversely, European ICT companies enhance their com-petitive advantage in their core areas of technological expertise in heterogeneousdynamic environments through geographically dispersed intra-firm networks.Therefore, diversity across complementary technological sectors seems to drivecorporate location strategy. Inter-sectoral co-location provides a source of greaterinnovation potential. In this sense, the paper argues that the increased concentrationof production of innovative activity in `higher’ order regional locations promotes agreater dispersion of corporate R&D in specific kinds of technologies. In otherwords, if European corporate R&D in ICT as a whole appears to be concentrated

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in a few regions, the analysis also reveals a pattern of geographical dispersion as faras specific ICT technological fields are concerned.

The success of innovative activity appears to be increasingly more embedded inlocal centres of expertise. It follows that intra-European corporate development ofICT technology cannot be explained by the classical argument of corporatestrategies aimed at the mere reduction of production costs. Rather, value addedfactors embedded in the social system determine European electrical MNCs’decisions in the choice of regional location. The existence of location hierarchies inICT research in Europe may be due to key factors (i.e. local infrastructure, cultureand business capabilities) attracting foreign corporations. The regions moreappealing to foreign research in ICT are also the most dynamic local economiccentres in the countries under analysis. As the building of local expertise is a path-dependent process, multinationals’ investments widen the gap between core andperipheral regions as a result of vicious and virtuous circles. This implies that thecompetition for attracting foreign R&D is highly uneven as established regionalsystems are more likely to host cutting-edge innovative activity. Nonetheless, theprocess is not irreversible as regions unable to adapt their institutions to cope withnew opportunities may pass into relative decline and lagging regions maysuccessfully open up to compensate with opportunities for development (Metcalfe,1996).

The findings of the paper also confirm the importance of the regional dimensionin the study of technological change. National systems-based analyses fail to providea complete picture of intra-border phenomena in an age where social and economiccohesion across European regions is a major political target. This confirms Nelson’s(1984) argument that, although national policies still impact on the development ofhigh-tech industries, the globalisation process calls for a more integrated world.

Notes

1. The Structural Funds are the European Regional Development Fund (ERDF), the European SocialFund (ESF), the European Agriculture Guidance and Guarantee Fund (EAGGF) and the FinancialInstruments for Fisheries Guidance (FIFG).

2. New economic geography has emerged from the (re)discovering of geography by economists willingto persuade their colleagues that s̀pace matters’ (Krugman, 1991a). Although the theoretical linksclaimed by new economic geographers with traditional location theory (L Èosch, 1954), recent critiqueshave pointed out that this `geographical turn’ is a quite distinct methodological and epistemologicalgenre from tradition location theory and its further development, namely regional science andeconomic geography. For a critical survey see Martin (1999).

3. Mergers and acquisitions are largely recognised in the data through the practise in most groups ofcentralising the patent application procedure in the parent company. Accordingly, the consolidationof affiliates’ research activity into corporate groups does not affect the information recorded in thepatent database because of the standardised structure of the patent document. In other importantcases affecting the ultimate ownership of significant numbers of patents, the change in ownershipstructure is incorporated into the organisation of the data, which involves in some cases the creationof a new corporate group and, in others, the expanded consolidation of groups with newly acquiredsubsidiaries.

4. A list of the six ICT technological sectors is provided in the Appendix (Table A1).5. A list of the ICT original technological patent classes is provided in the Appendix (Tables A1a and

A1b).6. Some of the 23 electrical corporations were dropped from the analysis on the grounds of the relatively

small number of patents in the technological patent classes considered, the outcome being that thefirms in the sample vary from one sub-period to another. As listed in Table A2, 20 firms wereexamined in the sub-period 1969 ± 77, whilst 21 and 19 were taken into account in the two later sub-periods, respectively

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7. These territorial levels of analysis have also been adopted by Cantwell and Iammarino (1998, 1999)in the case of Italy and the UK, respectively, and by Cantwell and Noonan (1999) in the case ofGermany.

8. The distinction between these two types of agglomeration economies is obviously not clear-cut.However, the categorisation of these regions proposed here takes into account other studies (e.g.Linders, 1985; Heidenreich and Krauss, 1998; Iammarino et al., 1998; Iammarino and Santangelo,1998) and EU publications (European Communities, 1993a, b) based on other economicindicators.

9. A selection of ICT patent classes is considered in this paper. The analysis focuses on the patent classeslabelling the technological clusters in Figure 1 in each of the sub-periods (1969± 77, 1978± 86 and1987± 95) rather than all the ICT patent classes recorded in the Reading database. 10.

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Appendix

Table A1. List of the ICT technological sectors, 1969± 95

TelecommunicationsOther electrical communications systems

Special radio systemsImage and sound equipment

SemiconductorsOffice equipment and data processing systems

Table A1a. List of the technological patent classes in the sub-periods 1969± 77 and1978± 86a

Telegraphy 1Demodulators 2Modulators 3Communications, Electrical: Acoustic Wave Systems and Devices 4Multiplex Communications 5Pulse or Digital Communications 6Telephonic Communications 7Telecommunications 8Communications: Electrical 9Code Data Generation or Conversion 10Image Analysis 11Communications: Directive Radio Wave Systems Devices 12Communications: Radio Wave Antennas 13Music 14Acoustics 15Pictorial Communication: Television 16Electrical Audio Signal Processing System and Devices 17Electrical Transmission or Interconnection Systems 18Active Solid State Devices 19Register 20Dynamic Magnetic Information Storage or Retrieval 21Electrical Computers and Data Processing Systems 22Static Information Storage and Retrieval 23Dynamic Information Storage and Retrieval 24Error Detection/Correction and Fault Detection/Recovery 25Electrical Pulse Counters, Pulse Dividers or Shift Register Circuits and Systems 26

aSee Table A1b.

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Table A1b. List of the technological patent classes in the sub-period 1987± 95a

Telegraphy 1Demodulators 2Modulators 3Communications, Electrical: Acoustic Wave Systems and Devices 4Multiplex Communications 5Pulse or Digital Communications 6Telephonic Communications 7Telecommunications 8Communications: Electrical 9Code Data Generation or Conversion 10Image Analysis 11Selective Visual Display Systems 12Communications: Directive Radio Wave Systems Devices 13Communications: Radio Wave Antennas 14Music 15Acoustics 16Pictorial Communication: Television 17Electrical Audio Signal Processing System and Devices 18Television 19Electrical Transmission or Interconnection Systems 20Active Solid State Devices 21Electrical Digital Logic Circuit 22Register 23Dynamic Magnetic Information Storage or Retrieval 24Electrical Computers and Data Processing Systems 25Static Information Storage and Retrieval 26Dynamic Information Storage and Retrieval 27Error Detection/Correction and Fault Detection/Recovery 28Electrical Pulse Counters, Pulse Dividers or Shift Register Circuits and Systems 29Information Processing System Organisation 30

a The difference in the number of technological patent classes between the first two sub-periods and thelast is due to a post-1990 re-classification.

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Table A2. List of firms in the sample in each of the three sub-periods

1969± 77 1978± 86 1987± 95

AEG-Telefunken AEG-Telefunken AEG-TelefunkenBICC ASEA AB ABB ASEA Brown BoveriBosch-Siemens Hausgerate BICC Bosch-Siemens HausgerateBrown Boveri Bosch-Siemens-Hausgerate CII-Honeywell BullCII-Honeywell Bull Brown Boveri ElectroluxElectrolux CII-Honeywell Bull Compagnie General

d’ElectricitÂe (CGE)LM Ericsson Electrolux General Electric Co.Compagnie General

d’ElectricitÂe (CGE)LM Ericsson ICL

General Electric Co. Compagnie Generald’ElectricitÂe (CGE)

LM Ericsson

ICL General Electric Co. Nixdorf ComputerNixdorf Computer ICL OlivettiOlivetti Nixdorf Computer PlesseyPhilips Olivetti PhilipsPlessey Philips Racal ElectronicsRacal Electronics Plessey SagemSiemens Racal Electronics SiemensStandard Telephones and

Cables (STC)Siemens Standard Telephones and

Cables (STC)

Thomson-Brandt Standard Telephones andCables (STC)

Thomson-Brandt

Thorn EMI Thomson-Brandt Thorn EMIZanussi Group Thorn EMI

Zanussi Group

Table A3. Regional location where European-owned research activity in ICT technologicalsectors carried out, 1969± 95

German lander (NUTS 1) Italian regioni (NUTS 2) UK standard regions (NUTS 1)

Baden-Wurttemberg Calabria East AngliaBayern Campania East MidlandsBerlin Emilia Romagna NorthBrandenburg Friuli-Venezia Giulia North WestBremen Lazio ScotlandHamburg Liguria South EastHessen Lombardy South WestMecklenburg-Vorpormmen Piedmont WalesNiedersachsen Tuscany West MidlandsNordrhein-Westfalen Sicily Yorkshire & HumbersideRheinland-FalzSachsenSachsen-AnhaitSchelswig-HolsteinThuringen

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Inter-European Regional Dispersion of Corporate Research Activity in Information and Communications Technology: The Case of German, Italian and UK Regions

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