Competitive Strategy and Clusters of Innovation

Abstract

The dominance of large-scale vertically integrated US corporations from around the 1920s onwards, with their elaborate managerial hierarchies and multi-divisional form of organisation, encouraged the belief that smaller craft-based firms were no longer relevant to ‘modern’ industrial societies because they did not enjoy the economies of scale of larger firms. Schumpeter (1942) played no small part in promoting this belief. He suggested three reasons for assuming a link between firm size and innovation: (1) large firms are in a better position to meet the high costs associated with the design and development of new products and processes; (2) large firms are more likely to have the capacity to absorb the failures and setbacks intrinsic to innovation; and (3) large firms are more able to exert an influence upon the markets in which they compete, and so are better placed to reap the benefits of innovative activity (Teece 1992).¹