The Pathways of Knowledge Spillovers*

Abstract

Knowledge spillovers are unintentional and costless transfers of knowledge from a leader firm to a follower firm. They can occur via three pathways: Observation, imitation, and managerial interaction; Labor mobility; and Value chain upgrading. Knowledge spillovers also affect the follower firm’s performance via competitive pressure imposed by new entrant leader firms. Knowledge spillovers are important to firms because they are a means to gain competitive advantage. In this study we explore the pathways by which knowledge spillovers can occur and effects of competitive pressure on the firm’s performance. We document the experiences of Vietnamese software companies to demonstrate the dynamics of knowledge spillovers. The typical question asked about knowledge spillovers is, do they occur? The answer to this question in the empirical literature is mixed. The mixed findings may be the result of the multiple pathways by which knowledge spillovers can be realized, by the chances of negative as well as positive spillovers, and by imprecise measurement. In this paper we ask a different question: How do knowledge spillover occur? Under what conditions do knowledge spillovers occur and when do they not occur? Here we take up cases in which company managers report giving or receiving knowledge. We analyze the pathways of knowledge spillovers, and illustrate them using experiences form Vietnamese software firms. We define knowledge spillovers to be the unintentional and nearly costless transfers of knowledge from a leader to a follower. They are externalities (usually thought to be positive).2 It is peer-to-peer learning. Knowledge spillovers may be horizontal (intra-industry) – between firms in the same business – in which case the firms are potential competitors. Or they may be vertical (inter-industry) – across stages of the value chain, upstream to suppliers or downstream to assemblers or distributors, in which case the firms may be customers. We can think of knowledge spillovers as a type of technology transfer or diffusion. The source, from whom knowledge flows is a particular firm, or a business unit in that firm, or a small set of people, or an individual actor devoted to a particular task. The source is the leader. The follower who receives the knowledge similarly may be any one of these units of analysis. Why do firms care about knowledge spillovers? The answer is that knowledge is the currency of competitive advantage. If we understand the pathways of knowledge spillovers, we understand the potential for gain or loss of knowledge. This applies especially to tacit or intangible knowledge that is difficult to obtain otherwise. Because it is nearly zero cost to obtain, it may be an underappreciated source of competitiveness.The research questions in this study are: (1) What exactly are the knowledge spillovers? What are the sources? (2) What is the spillover transmission pathway? How does knowledge get from leader to follower? (4) What is the cost, direct and indirect, perceived or measured, of the spillover to the recipient and to the leader companies? (5) How much value does the knowledge spilled over have? How is that value assessed?