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Journal of Economic Geography Advance Access originally published online on July 24, 2008
Journal of Economic Geography 2008 8(5):699-725; doi:10.1093/jeg/lbn024
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© The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

This article appears in the following Journal of Economic Geography issue: Geography and the Cultural Economy [View the issue table of contents]

Location, control and innovation in knowledge-intensive industries

Ram Mudambi*

*Department of Strategic Management, Fox School of Business, Speakman Hall, Temple University, Philadelphia PA 19122, USA.

email <ram.mudambi{at}temple.edu>

JEL classifications: F23, O33, O32, F02

The rising share of intangibles in economies worldwide highlights the crucial role of knowledge-intensive and creative industries in current and future wealth generation. The recognition of this trend has led to intense competition in these industries. At the micro-level, firms from both advanced and emerging economies are globally dispersing their value chains to control costs and leverage capabilities. The geography of innovation is the outcome of a dynamic process whereby firms from emerging economies strive to catch-up with advanced economy competitors, creating strong pressures for continued innovation. However, two distinct strategies can be discerned with regard to the control of the value chain. A vertical integration strategy emphasizes taking advantage of ‘linkage economies’ whereby controlling multiple value chain activities enhances the efficiency and effectiveness of each one of them. In contrast, a specialization strategy focuses on identifying and controlling the creative heart of the value chain, while outsourcing all other activities. The global mobile handset industry is used as the template to illustrate the theory.

Keywords: innovation, value chains, intangibles, vertical integration, specialization, knowledge-intensive industries
Date submitted: 15 September 2007     Date accepted: 28 May 2008


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