INNOVATION NETWORKS IN THE GERMAN LASER INDUSTRY EVOLUTIONARY CHANGE, STRATEGIC POSITIONING AND FIRM INNOVATIVENESS Dissertation Submitted in fulfillment of the requirements for the degree "Doktor der Wirtschaftswissenschaften" (Dr. oec. / Ph.D. in Economics) to the University of Hohenheim, Faculty of Business, Economics and Social Sciences, Chair for economics of innovation (Prof. Dr. Andreas Pyka) presented by Muhamed Kudic 2012
Table of contents LIST OF FIGURES LIST OF TABLES LIST OF ABBREVIATIONS LIST OF SYMBOLS I Ill V VIII 1 INTRODUCTION 1 1.1 THE INITIAL STARTING POINT AND AIM OF THE STUDY 2 1.2 STATE OF THE ART AND RESEARCH QUESTIONS 4 1.3 RESEARCH DESIGN AND OUTLINE 12 2 THEORETICAL FOUNDATION 17 2.1 THE CLASSICAL-NEOCLASSICAL PARADIGM IN ECONOMICS 18 2.2 EVOLUTIONARY THINKING IN ECONOMICS AND RELATED DISCIPLINES 23 2.3 NEO-SCHUMPETERIAN APPROACH - INTRODUCING THE THEORETICAL FRAMEWORK 27 2.3.1 Clarification of some basic terms and concepts 30 2.3.1.1 On the nature of information, knowledge and learning 30 2.3.1.2 Disentangling creativity, inventions and innovation 32 2.3.1.3 Early innovation models and th'e'emergence of systemic thinking 33 2.3.2 Understanding economic change - the Neo-Schumpeterian approach 34 2.3.2 A The notion of individuals and firms 35 2.3.2.2 Qualitative change, punctuated equilibria and pattern formation 36 2.3.2.3 Path dependencies and irreversibilities 37 2.3.3 Addressing some selected concepts 38 2.3.3.1 The proximity concept 38 2.3.3.2 The innovation system concept 42 2.3.3.3 The network concept 43 2.4 WHY DO SOME FIRMS OUTPERFORM OTHERS? ADDRESSING THE SOURCES OF COMPETITIVE ADVANTAGE 45 2.5 THEORETICAL CONCEPTS IN INTERDISCIPLINARY ALLIANCE AND NETWORK RESEARCH. 49 2.5.1 Defining interorganizational relations, strategic alliances and networks 50
2.5.2 Explaining the existence of hybrid organizational forms 54 2.5.3 Addressing the rationales and motives for cooperating. 58 2.5.4 Network embeddedness andfirm performance 64 2.6 OWN RESEARCH IN THE LIGHT OF THE THEORETICAL CONCEPTS 67 3 INDUSTRY, DATA AND METHODS 69 3.1 A CLOSER LOOK AT LASERS AND THE GERMAN LASER INDUSTRY 70 3.1.1 Historical background of laser research 71 3.1.2 Basic operating principles of lasers 73 3.1.3 From an ingenious idea to the emergence of a new technology 75 3.1.4 The onset of laser research in East and West Germany 80 3.1.5 German laser industry characteristics 85 3.2. METHODOLOGICAL ISSUES, DATA SOURCES AND DATA COLLECTION METHODS 89 3.2.1 Initial methodological considerations 89 3.2.2 Data sources and data collection methods 92 3.2.2.1 Industry data : 93 3.2.2.2 Firm data 97 3.2.2.3 Network data *: 98 3..2.2.4 Innovation data 105 3.3 QUANTITATIVE CONCEPTS AND METHODS 108 3.3.1 Graph-theoretical foundation and elementary network concepts 108 3.3.2 Quantitative network analysis methods 113 3.3.2.1 Methods for calculating network positioning measures 114 3.3.2.2 Methods for calculating ego network measures 119 3.3.2.3 Methods for calculating overall network measures, 121 3.3.3 Spatial proximity and geographical concentration concepts 125 3.3.3.1 Methods for calculating spatial proximity measures 125 3.3.3.2 Methods for calculating geographical concentration measures: 127 3.4 STRUCTURE AND SCOPE OF THE COMPILED DATASETS 128 3.4.1 Dataset I: Event history data structure 128 3.4.2 Dataset 11: Panel data structure 131 3.5 EMPIRICAL METHODS 134 3.5.1 Econometric methods for panel count data 134 3.5.2 Event history analysis methods 139
4 DESCRIPTIVE ANALYSIS OF THE GERMAN LASER INDUSTRY 143 4.1 INDUSTRY DYNAMICS AND GEOGRAPHICAL CONCENTRATION 144 4.1.1 Industry dynamics - an overview 144 4.1.2 Geographical concentration patterns 145 4.1.2.1 Geographical concentration indices 146 4.1.2.2 Spatial distribution patterns 147 4.2 A CLOSER LOOK AT LSMS AND PROS 152 4.2.1 Exploration of LSM entry and exit dynamics 153 4.2.2 Size distribution of LSMs at the national level 154 4.2.3 Size distribution of LSMs at the regional level 156 4.2.4 Composition of laser-related PROs in Germany 159 4.3 PUBLICLY FUNDED R&D COOPERATION PROJECTS 161 4.3.1 Basic descriptive statistics on laser-related R&D cooperation projects 161 4.3.2 Cooperation project involvement of LSMs and PROs at the national level 163 4.4 THE EVOLUTION OF THE GERMAN LASER INDUSTRY INNOVATION NETWORK 165 4.4.1 Longitudinal exploration of basic network characteristics 167 4.4.1.1 Basic network change patterns - measures at the node level 167 4.4.1.2 Basic network change patterns - measures at the tie level 170 4.4.2 Large-scale properties of the German laser industry innovation network 172 4.4.2.1 Degree distribution and scale-free network structure 173 4.4.2.2 Small-word properties 176 4.4.2.3 Core-periphery structure 179 4.4.3 Exploration of network change patterns over time 185 5 ANALYZING NETWORK EVOLUTION, STRATEGIC POSITIONING AND FIRM INNOVATIVENESS 189 5.1 CAUSES AND CONSEQUENCES OF EVOLUTIONARY NETWORK CHANGE PROCESSES 191 5.1.1 Motivation and research questions 192 5.1.2 State of the art and theoretical background 194 5.1.2.1 What do we know about the dynamics of alliances and networks? 194 5.1.2.2 An evolutionary view on organizational and interorganizational change..200 5.1.3 Conceptual framework and hypotheses development 202 5.1.3.1 General principles of network evolution models 202 5.1.3.2 Elementary building-blocks of the framework 203
5.1.3.3 Determinants of evolutionary micro level network change processes 204 5.1.3.4 Micro level network change processes at the core of the model 206 5.1.3.5 Structural consequences of evolutionary micro level processes 208 5.1.3.6 Hypotheses development 215 5.1.4 Industry, data and methods 220 5.1.4.1 Reasons for choosing the German laser industry 220 5.1.4.2 Data and methods 220 5.1.5 Empirical approach and results 223 5.1.5.1 Empirical estimation approach.:;. 223 5.1.5.2 Empirical results 224 5.1.6 Discussion and implications -.: 230 5.2 COOPERATION EVENTS, EGO NETWORKS AND FIRM INNOVATIVENESS 231 5.2.1 Motivation and research questions 232 5.2.2 Theoretical considerations, conceptual framework and hypotheses 235 5.2.2.1 R&D alliances, networks and innovation output 235 5.2.2.2 Ego network structure and innovation output 237 5.2.2.3 An evolutionary perspective on ego networks 239 5.2.2.4 Conceptual framework - direct and indirect innovation effects 240 5.2.2.5 Hypotheses on direct & indirect cooperation-related innovation effects... 243 5.2.3 Data, methods and variable specification 248 5.2.3.1 Applied data sources 248 5.2.3.2 Methods 251 5.2.3J3 Variable specification 252 5.2.4 Empirical analysis - models specification and results 255 5.2.4.1 Empirical model specification 256 5.2.4.2 Estimation results 257 5.2.5 Discussion and implications 262 5.3 LARGE-SCALE NETWORK PROPERTIES AND FIRM INNOVATIVENESS 265 5.3.1 Motivation and research questions 265 5.3.2 Large-scale patterns, absorptive capacity and the "small-world hypothesis'... 269 5.3.2.1 Graph theoretical foundations of the "small-world" phenomenon 269 5.3.2.2 Potential and realized absorptive capacity - the missing link 271 5.3.2.3 Large-scale network properties - opening up the black box 274 5.3.3 Industry, data and methods 279 5.3.3.1 Introducing the German laser industry 279 5.3.3.2 Data, variables and methods 279
5.3.4 Estimation results and empirical findings 284 5.3.4.1 Model specification and estimation strategy 284 5.3.4.2 Estimation results 286 5.5.5 Discussion and implications 289 5.4 NETWORK POSITIONING, GEOGRAPHICAL CO-LOCATION OR BOTH? 291 5.4.1 Motivation, research gap and own contribution 291 5.4.2 Theory background 294 5.4.2.1 The multifaceted character of proximity 294 5.4.2.2 Network proximity and firm innovativeness 296 5.4.2.3 Geographical proximity and firm innovativeness 299 5.4.2.4 Addressing combined proximity effects and firm innovativeness 301 5.4.3 Conceptual framework and hypotheses development 301 5.4.3.1 Setting the stage - specifying distinct and combined proximity 301 5.4.3.2 The relationship between proximity effects and firm innovativeness 303 5.4.4 Industry, data and methods 307 5.4.4.1 Introducing the German laser industry 307 5.4.4.2 Data sources, methodological issues and variable specification 307 5.4.5 Econometric estimations and empirical findings 312 5.4.5.1 Model specification and estimation strategy 312 5.4.5.2 Empirical results 313 5.4.6 Discussion and implications 321 6 MAIN CONTRIBUTIONS, FURTHER RESEARCH AND CONCLUSION 325 6.1 SUMMARY OF OUR FINDINGS, CONTRIBUTIONS AND LIMITATIONS 325 6.1.1 Essential insights gained from the descriptive analysis 325 6.1.2 The quintessence of the four empirical studies 327 6.1.3 Addressing some general issues and limitations 331 6.2 FRUITFUL AVENUES FOR FURTHER RESEARCH 332 6.3 CONCLUSION 336 BIBLIOGRAPHY 339 APPENDIX 376