Knowledge sharing and business relocation decisions.

Deciding to relocate a business isn’t an easy feat. It’s a complex decision that considers, among others, workforce availability, local market size and financial incentives. But there is another important parameter that often gets neglected; knowledge diffusion.

Going deep into the era of knowledge economies, most people recognize that knowledge acquisition offers a significant competitive advantage. What makes the acquisition of knowledge such a strong competitive advantage is that knowledge is basically tacit, making the dissemination of it from business-to-business a pretty difficult task.

And when not developed internally (which is less often than not), knowledge is usually acquired either directly through acquisitions and mergers, or indirectly through knowledge spillovers from other companies. Research also supports the argument that same-sector companies consider the location of other knowledge sources as a significant element in relocation selection.

There are three disctinct sources of knowledge; academia, industry and public research institutes. All three sources produce knowledge but what differentiates one from another is the degree of difficulty in assimilation. The academic community and public institutes produce basic or general knowledge, which cannot be easily commercialized. Industry generates more specific knowledge, which is easier to be transferred between companies.

“…same-sector companies consider the location of other knowledge sources as a significant criterion in relocation selection.”

So depending on each company’s learning capabilities, relocation could be directed towards areas with either strong academic, research or industrial knowledge. But there is another element on this kind of analysis. Since companies are at the same time receivers and transmitters of knowledge, executives have to acknowledge along with the potential gains from knowledge acquisition the possible loss of knowledge.

What does that mean for city and regional planning? Spatial proximity seems to offer competitive advantages and financial benefits, as it creates business clusters and know-how synergies. Indeed it seems that the closer together the firms are located, the greater the likelihood of positive synergies and knowledge diffusion.

So when developing urban and regional regeneration projects, policy makers should aim at creating an environment of knowledge sharing. Examples of positive synergies include collective learning, institutionalized and informal ties, and staff mobility. Across the world, cities like Barcelona in Spain, Boston in the USA and Curitiba in Brazil seem to have recognized the importance of knowledge diffusion and are planning knowledge hubs, that allow for inter-company cooperation and linkages with research and academia.