No place like home? The embeddedness of innovation in a regional economy

Two views have come to dominate the debate on the globalization of innovati on in the emerging knowledge-based economy. The first contends that globali zation reduces the significance of the home base as the primary site for in novation, as firms increasingly source and apply their innovations on a glo bal basis. The second view as articulated in the innovation systems approac h contends that the institutionally embedded nature of the innovation proce ss, which is a central feature of the new economy, demands a continued, and even accentuated, role for the local context. In this article, we seek to contribute to the debate by evaluating the extent to which the institutiona l context and local setting play an important role in determining the innov ative behaviour of manufacturing firms in Ontario, Canada. Specifically, we compare the practices of 242 indigenous and multinational establishments w ith respect to in-house technological capabilities, innovative processes, e xternal sources of innovative ideas, and the nature and the extent of innov ative inter-firm practices. Our findings indicate that indigenous firms are more likely to perform innovative activities locally and are more embedded in the Ontario economy than their multinational counterparts, as they exhi bit higher R&D intensity, have a larger proportion of scientific, technical and managerial employees, adopt innovative inter-firm practices more exten sively, and are more likely to source innovative ideas from local customers . The multinational establishments, in contrast, tend to exhibit lower R&D intensity, are more reliant on their inhouse marketing units, and continue to rely on their parent companies as a primary source for innovative ideas. These results suggest that local context still exerts a significant influe nce on the nature and extent of innovative activities in the knowledge-base d economy.