How, When and Why Does Colocation of Innovation and Production Matter? a Research Synthesis

Recent literature on the implications of manufacturing offshoring on firms’ and regions’ innovative capabilities cast some shadow on the long-run sustainability of “innovate here-produce there” arrangements (Bonvillian, 2012). Detaching production and research and development, according to some authors, depletes regions and industrial ecosystems of tacit knowledge and of a host of industrial commons that might reduce firms and regions’ ability to come up with new technologies, products and processes (Pisano, Shih, 2009). According to more nuanced analyses, the offshoring of manufacturing processes might co-exist with a prominent position in innovating within extant technological trajectories and product architectures, but might hinder the long-term capacity of developing radical innovation (Fuchs and Kirchain, 2010).

Literature on the effects of offshoring on innovation is far from conclusive. While the most recent literature in a variety of fields recognises that geographical proximity between R&D and manufacturing is key to preserving the innovation capabilities of firms and regions, research has also pointed to the lack of fine-grained analyses of their mutual interdependence (Ketokivi and Ali-Yrkko, 2009; Buciuni and Finotto, Forthcoming). The lack of unifying and parsimonious theoretical frameworks depends on the variety of angles and disciplinary perspectives that animated the debate on the issue: analyses at different levels of observation have been performed (firm-level and supply chain-level studies vis-à-vis more general analyses of entire industries and regions) and analytical toolkits coming from a variety of disciplinary background were deployed. Research designs in the field have varied extensively: from variance explanations that focus on causal correlations within the processes at the frontier of offshoring and innovation, to more process-oriented explanations that aim at capturing the unfolding innovation processes in situations where production was or was not offshored.

Our paper aims at proposing a framework for research synthesis (Denyer and Tranfield, 2006) in terms of contextual conditions, mechanisms and outcome patterns to identify, within different studies, the mechanisms connecting production and innovation, and the the contexts and conditions in which they produce discrete outcomes. Such a synthesis framework might facilitate taking stock of divergent and dispersed streams of literature and orient future research on the topic. In particular, and given our focus on the mechanisms entwining manufacturing and innovation in different contexts, the paper proposes a series of propositions related to two capabilities that might explain the importance of colocation of R&D and manufacturing in fuelling innovation. In particular we maintain that the contiguity of product development and manufacturing contribute to create and maintain two “capacities” both at the firm and at the territorial level: absorptive capacity–that is the capacity to “absorb” novel knowledge and technologies and deploy them in existing business models– and combinatory capacity–that is the ability to hybridize extant and novel knowledge to pivot on extant business models and capabilities and exploit them in new industries and/or markets.