Published 1/20/2016
Local and regional environments contribute to innovation through interaction between institutions, firms, and entrepreneurs.
Studies suggest that frequent interactions between institutions in the same industry can lead to innovation. Institutions and firms in the same or complementary fields benefit from having a similar infrastructure, labor force, market, and culture. On the contrary, other studies show that interaction between diverse sectors and knowledge bases can also lead to innovation. However, there is no formula for an optimal level of homogeneity or diversity among institutions or firms. Research suggests that interaction is beneficial when the knowledge specializations of multiple actors are different enough that all players can learn new things from each other, but there is enough common ground for interaction to be fruitful. Cities are ideal environments for innovation because they offer both more specialization, as well as more diversity, and typically have high knowledge bases in a physically proximate area. 1
Information technology infrastructure is crucial to innovation and performance in the digital age.
Technological innovation has clustered to specific places with functional assets that firms require. Historically, centers of innovation have been places with heavy industry and academic research and development, capable support services, and communities which attract knowledgeable human capital. Nowadays, successful high tech firms require IT capabilities for both internal processes and managing external clients and customers. As the digital economy becomes more important, information technology infrastructure capacities will increase in their importance, as customer satisfaction, real-time responsiveness, virtual communication, and data management become mainstays of successful businesses.2
Cities should have a strategic plan for cultivating knowledge-based industries.
Some cities have successfully weathered declines in manufacturing by pursuing long-term strategies to grow knowledge industries. Knowledge industries are knowledge-intensive activities that contribute to technical and scientific advance: engineering, technology, biotechnology, digital media, energy, medicine, and specialized consulting and services. Strategic planning for growing knowledge-based industries should revolve around developing human capital, supportive infrastructures, and quality of life. A strategic plan should account for neighborhood, city-wide, and regional considerations.3
Personal interaction promotes knowledge exchange and innovation.
Regular, face-to-face interaction is the best way to transfer knowledge and ideas and generate social capital (trust, bonds, relationships), which facilitates the growth of new ideas and partnerships. Strategies that promote co-location, easy access, or intentional networking between firms, institutions, or people can increase opportunities for innovation. Other types of interaction (virtual communities) can also promote knowledge exchange, but perhaps not as efficiently as in-person interaction.4
Talent is attracted to diversity.
Knowledge-based industries are fundamentally driven by talented individuals. Cities should intentionally aim to attract or retain talent as a strategy for innovation. Research has shown that talent is attracted to cities with a diversity of firms – which represents low barriers to opportunities – and a diversity of lifestyles and desirable cultural and recreational amenities.5
Access to capital is a key barrier to start-up entrepreneurship.
Evidence shows that sufficient access to start-up capital is critical for successful business. Racial minorities and women have less access to capital. Increasing homeowner-ship, credit, entrepreneurial skills, and financial literacy are important long-term strategies to increase the scope of participation and success in the small business sector.6
Immigration and Entrepreneurship.
Immigrants consistently have higher business ownership and new business formation rates than non- immigrants in the United States. Immigrant-owned businesses can contribute greatly to the overall economy, jobs, and revitalize neighborhoods. Immigrants have lower home-ownership rates than non- immigrants, suggesting that increasing home-ownership among immigrants might improve access to capital and further increase immigrant entrepreneurship. Therefore, increasing language skills, educational access, and linkages with established firms as mentoring partners should strengthen immigrant entrepreneurship.7
1 Cooke, P., Heidenreich, M., & Braczyk, H.-J. (Eds.). (2004). Regional systems of
innovation: The role of governance in a globalized world. London: Routledge; Feldman, M. P., & Audretsch, D. B. (1999). Innovation in cities: Science-based diversity, specialization and localized competition. European Economic Review, 43(2), 409-429; Florida, R. (2002). The rise of the creative class. New York: Basic Books.
2 Feldman, M. P., & Florida, R. (1994). The geographic sources of innovation: Technological infrastructure and product innovation in the United States. Annals of the Association of American Geographers, 84(2), 210-229; Mithas, S., Ramasubbu, N., & Sambamurthy, V. (2011). How information management capability influences firm performance. MIS Quarterly, 35(1), 237;
Setia, P., Venkatesh, V., & Joglekar, S. (2013). Leveraging digital technologies: How information quality leads to localized capabilities and customer service performance. MIS Quarterly, 37(2), 565-590.
3 Davies, W. K. (2015). Developing Knowledge Cities. In Theme cities: Solutions for urban problems (pp. 381-424). Springer Netherlands; Knight, R. V. (1995). Knowledge-based development: Policy and planning implications for cities. Urban Studies, 32(2), 225-260.
4 Capdevila, I., (2013). Knowing communities and the innovative capacity of cities. Available at SSRN: http://ssrn.com/abstract=2384680 or http://dx.doi.org/10.2139/ssrn.2384680.
5 Florida, R. (2002). The economic geography of talent. Annals of the Association of American Geographers, 92(4), 743-755; Florida, R., Mellander, C., & Stolarick, K. (2008). Inside the black box of regional development—Human capital, the creative class and tolerance. Journal of Economic Geography, 8(5), 615-649.
6 Bates, T., & Robb, A. (2013). Greater access to capital is needed to unleash the local economic development potential of minority-owned businesses. Economic Development Quarterly, 0891242413477188; Robb, A., & Marin Consulting, L. L. C. (2013). Access to capital among young firms, minority-owned firms, women-owned firms, and high-tech firms. Report to the Small Business Administration Office of Advocacy (April 2013), available at http://www. sba. gov/sites/default/files/files/rs403tot, 282, 29; Smith-Hunter, A., & Nolan, J. R. (2011). Funding new business ventures: Differences in minority and non-minority family-owned business’ access to start-up capital. Journal of Business & Economics Research (JBER), 1(2).
7 Fairlie, R. W. (2012). Immigrant entrepreneurs and small business owners, and their access to financial capital. Small Business Administration; Hart, D. M., & Acs, Z. J. (2011). High-tech immigrant entrepreneurship in the United States. Economic Development Quarterly, 25(2), 116-129; Rath, J., & Kloosterman, R. (2000). Outsiders’ business: A critical review of research on immigrant entrepreneurship. International Migration Review, 657-681.
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