The Impact of Complementary Agglomeration and Multi‐unit Systems on New Product Introduction
| DOI | http://doi.org/10.1111/j.1467-8551.2009.00652.x |
| Date | 01 December 2010 |
| Published date | 01 December 2010 |
| Author | Hsien‐Jui Chung,Hsuan Lo |
The Impact of Complementary
Agglomeration and Multi-unit Systems on
New Product Introduction
Hsuan Lo and Hsien-Jui Chung
1
Department of Hospital and Health Care Administration, Chia Nan University of Pharmacy and Science, 60
Erh-Jen Rd, Sec. 1, Jen-Te, Tainan, Taiwan, ROC, and
1
Department of Business Administration, National
Chung Cheng University, Taiwan, ROC
Corresponding author email: hsuan40@gmail.com
This study explores the relationship between organizational agglomeration and new
product introduction. It proposes that product-complementary agglomeration increases
the likelihoodof new product introduction, but thatthe effect on new product introduction
is non-linear. In addition, the influence of agglomeration on new product introduction is
contingent on organizational form (i.e. multi-unit form or independent form). Using
longitudinal data for the hospital industry in Taiwan from 1997 to 2002, we found that
the relationship between product-complementary agglomeration and new product
introduction is an upward trending hooked curve. As the degree of complementary
agglomeration increases, the likelihood of introducing new products also increases, but
the rate of increase diminishes with the degree of complementary agglomeration. In
addition, we also found that the positive effect of product-complementary agglomeration
on new product introduction is stronger for independent firms than for multi-unit firms.
Introduction
The introduction of new products and services is a
major strategy for organizations pursuing growth
(Penrose, 1995). New products and services allow
organizations to enter new markets (Burgelman,
1991) and adapt to demand shifts (Brown and
Eisenhardt, 1995). Knowledge and techniques
about new products and services influence the
success of a new introduction (Cohen and
Levinthal, 1990; Smith, Collins and Clark, 2005).
Marshall (1920) is an early source of the idea
that agglomeration can reduce information
search cost and permit organizations access to
leading knowledge and techniques. Agglomera-
tion is defined as firms that are physically
proximate or collocated (Chung and Kalnins,
2001). Previous studies have found that agglom-
eration is an important factor in facilitating
innovation and knowledge among firms. Caniels
and Romijn (2003) claim that the spillover effect
from agglomeration improves the exchange of
resources and techniques, and thus helps firms
acquire resources. Pouder and St John (1996)
further claim that agglomeration increases firms’
innovative activities. Thus it would seem that
agglomeration does indeed play a critical role in
new product development, facilitating knowledge
transfer and innovation. Organizations within a
cluster may have innovation capabilities and
resources differing from otherwise similar firms
which are not within a cluster. Agglomeration
offers useful insights on new product introduc-
tion and innovation. Before we can make full use
of these insights, however, it is important to
examine how agglomeration influences firms’
innovation more closely. Agglomeration benefits
are not always as straightforward as past studies
have found, and recent studies have shown that
The authors are grateful for research grant NSC 97-
2410-H-343-006-MY2.
British Journal of Management, Vol. 21, 905–920 (2010)
DOI: 10.1111/j.1467-8551.2009.00652.x
r2009 The Author(s)
British Journal of Management r2009 British Academy of Management. Published by Blackwell Publishing, 9600
Garsington Road, Oxford OX4 2DQ, UK, and 350 Main Street, Malden, MA 02148, USA.
agglomeration does not always benefit every
organization equally.
In particular, resource acceptors (firms that
receive peer firms’ resources in a cluster) can gain
more from agglomeration, while resource con-
tributors (firms with better technologies, human
capital, training programmes, suppliers or dis-
tributors which share resources with peer firms in
a cluster) may suffer (Canina, Enz and Harrison,
2005; Shaver and Flyer, 2000). Chung and
Kalnins (2001) point out that large firms in a
cluster often play the role of resource contribu-
tor, while small firms act as resource acceptors.
Small firms often lack resources such as technol-
ogy and experience. Small firms collocated with
large firms can absorb large firms’ resources to
enhance performance. By contrast, the spillover
effect of agglomeration may damage large firms’
potential gains because resources of large firms
are shared by other firms in the same cluster. The
relative resource endowments of collocating firms
affect gains from agglomeration. Geographically
clustered firms, when complementary in resources
or technology, can provide each other with
resources or technologies necessary for new
products, easing new product and service devel-
opment. Few studies have explored the effects of
agglomeration on new product introduction. The
current research extends agglomeration perspec-
tives by focusing on collocated firms with
complementary products (complementary ag-
glomeration), and then examines the influence
of complementary agglomeration on the like-
lihood of new product introduction.
In addition to examining the influence of
complementary agglomeration on new product
introduction, the study also examines whether the
influence of complementary agglomeration differs
across multi-unit and single-unit organizations. A
multi-unit organizational form is common in both
manufacturing and service industries. Such an
organizational form has significant influence on
organizations’ decisions and actions. A member
organization within a multi-unit system (multi-
unit organization) often needs to conform to the
policies of the system (Audia, Sorenson and Hage,
2001) and thus may have a different response to
agglomeration. Whether agglomeration yields
differing new product effects for multi-unit orga-
nizations is thus an issue worthy of notice.
The study is organized as follows. The next
section presents the theory and hypotheses, and
the third section reports the sample frame, re-
search data, measurement and the model em-
ployed to test the hypotheses. The fourth section
presents results, and the final section ends with a
discussion and conclusion.
Theory and research hypotheses
Product-complementary agglomeration
Contrary to traditional perspectives on competi-
tion, in many industries firms seek geographic
proximity. Marshall (1920) uses agglomeration
theory to explain this phenomenon, showing that
geographic agglomeration may encourage firms
to share managerial knowledge and production
experience. Firms in a cluster acquire advance
knowledge and techniques of new product devel-
opment more easily, lowering information search
costs and increasing efficiency. Marshall’s argu-
ments are incorporated in strategy research, such
as Caniels and Romijn’s (2003) claim that the
externalities of agglomeration promote collective
learning, and Pouder and St John’s (1996)
conclusion that agglomeration helps organiza-
tional innovation; they all believe that spillover
from collocation has a positive influence on
knowledge accumulation. This belief is based on
work such as Saxenian’s (1994) study of innova-
tion in Silicon Valley, which shows that entre-
preneurs learn both from their own experience
and from the experience of their colleagues in the
neighbourhood. Such a learning process contri-
butes to the accumulation of knowledge, and
allows entrepreneurs to experiment with new
strategies and new products. However, results
from empirical studies have given differing
results; some support the benefits of agglomera-
tion economics (e.g. Head, Ries and Swenson,
1995), while others do not (e.g. Appold, 1995).
Shaver and Flyer (2000), Chung and Kalnins
(2001) and Canina, Enz and Harrison (2005)
have found that these inconsistent results are
caused by ignoring the difference between re-
source acceptors and contributors. Not all
organizations gain from agglomeration; instead,
agglomeration benefits resource acceptors more
than resource contributors. Shaver and Flyer
(2000) have found that firms which contribute,
without requiring resources or techniques, find it
difficult to gain from agglomeration. Thus
benefits depend on complementary resources (or
906 H. Lo and H.-J. Chung
r2009 The Author(s)
British Journal of Management r2009 British Academy of Management.
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