INTRODUCTION
In recent years, new ventures have increased the number of their collaborative arrangements with diverse international partners to improve innovation (Zhang & Li, Reference Zhang and Li2010; Patel, Fernhaber, McDougall-Covin, & van der Have, Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014), growth and performance (Colombo, Grilli, Murtinu, Piscitello, & Piva, Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009). These companies are at the earlier stages of their life cycles and have to overcome important resource constraints and difficulties to survive (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000). Collaborating with partners dispersed around the globe becomes critical for these young companies, as external linkages help them overcome the liability of newness and smallness they tend to face (Zahra, Reference Zahra2005; Zhang & Li, Reference Zhang and Li2010), gain access to new markets, and acquire the assets required to boost the introduction and commercialization of novel outcomes (Stuart, Reference Stuart2000; Rothaermel & Deeds, Reference Rothaermel and Deeds2004). To illustrate, some Australian ventures have been able to develop environmentally friendly air conditioning innovations because of the knowledge they gained from European partnerships (Sullivan Mort & Weerawardena, Reference Sullivan Mort and Weerawardena2006). Likewise, Pharmarem, an American start-up focused on developing cancer treatments, is engaging in collaborations with several international partners (e.g., in China) to develop and bring its innovative products to the market faster.
Several studies have focused on analyzing how different variables affect the relation between new ventures’ collaborations and innovation performance (Zhang & Li, Reference Zhang and Li2010; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012). Though some have examined the characteristics of the new venture’s set of partnerships – that is functional diversity – and their impact on innovation (Shan, Walker, & Kogut, Reference Shan, Walker and Kogut1994; Kotabe & Swan, Reference Kotabe and Swan1995; Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000), others have explored collaborators’ characteristics such as size, technological reputation (Stuart, Reference Stuart2000; Colombo et al., Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009; Diestre & Rajagopalan, Reference Diestre and Rajagopalan2012), scope, age, resources, and level of innovativeness (Burgers, Hill, & Kim, Reference Burgers, Hill and Kim1993; Shan, Walker, & Kogut, Reference Shan, Walker and Kogut1994; Stuart, Reference Stuart2000). In addition to these streams of research, recent studies have highlighted that some contextual factors, that are related to situational conditions such as the level of economic development of a region, the institutional setting (Ellis, Reference Ellis2006), the geographical and technological landscape (Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003), or the distance between partners in international transactions (Nachum, Zaheer, & Gross, Reference Nachum, Zaheer and Gross2008; Dellestrand & Kappen, Reference Dellestrand and Kappen2012), may condition significantly the benefits organizations obtain from their collaborative linkages for innovation purposes (Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003; Wu, Reference Wu2012).
Over the last years, the literature has examined how different dimensions of distance affect international collaboration networks and their effect on innovative activities (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014; Wu, Reference Wu2015). Distance can be derived from geographical or other contextual features that also need to be considered (Li & Scullion, Reference Li and Scullion2006; Ponds, Van Oort & Frenken, Reference Ponds, Van Oort and Frenken2007). Thus, the construct of distance not only encompasses the dimension of geographical distance; that is, the separation in physical space (Bell & Zaheer, Reference Bell and Zaheer2007; Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007; Ben Letaifa & Rabeau, Reference Ben Letaifa and Rabeau2013), but also the dimension of institutional distance (Kostova & Zaheer, Reference Kostova and Zaheer1999; Boschma, Reference Boschma2005), that reflects ‘the rich diversity of ways in which countries differ’ (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010: 1461), in terms of their economic, political, technological, legal, and socio-cultural framework (Mattes, Reference Mattes2012).
In previous studies, the role of geographical distance has been emphasized. Drawing on the resource-based view (RBV), and more specifically the knowledge-based view (KBV), researchers have studied alliances as key mechanisms that enable firms to access and acquire the knowledge and resources they need to improve their competitive position (Grant, Reference Grant1991; Gulati, Reference Gulati1995; Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001; Jeong, Reference Jeong2014). Past investigations show that when geographical distance between the partners increases, the ability to successfully acquire, combine, and transfer knowledge for innovation purposes decreases (Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003; Li & Scullion, Reference Li and Scullion2006). However, few previous studies address how the geographical and institutional distance jointly interact to affect innovation performance derived from collaborative linkages. This is an issue that merits special attention, as deep explanations on innovation require looking at distinct distance dimensions and their complementarities and substitution effects; thereby going beyond spatial views that, taken in isolation, may be inaccurate and misleading (Boschma, Reference Boschma2005; Mattes, Reference Mattes2012). Along these lines, Ponds, Van Oort, and Frenken (Reference Ponds, Van Oort and Frenken2007) showed that geographical proximity compensates for some of the problems that arise from institutional distance in interorganizational collaborations. Yet, this study does not take companies recently created as the unit of analysis, which is particularly relevant as short product life cycles and technological turbulence are pushing new ventures to search locally and internationally the knowledge inputs required to exploit innovation opportunities (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). Overall, recent research calls attention to the need to understand the liabilities of collaborating with distant (i.e., geographical and institutional) partners and the innovation advantages that could emerge from these alliances, to better understand ‘the contingencies under which such positive effects may arise’ (Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014: 67). Thus, this study asks: how do the geographical and institutional distance between the new venture and its partners affect the relation between collaborative linkages and innovation performance? The aim is to fill a research gap in the literature, by analyzing under what conditions the interplay of the geographical and institutional distances may boost or lower the effects of collaborations on innovation performance in the context of new ventures.
This study makes several contributions to the literature. First, it adds to research on international collaborative linkages and innovation (Leung, Reference Leung2013; Wu, Reference Wu2015). The paper explores how new ventures engagement in international collaborations with other partners – that is, firms, customers, suppliers, universities, etc. – may be critical for these firms to improve their ability to develop and commercialize new products. Further, the study extends the literature on collaboration networks that cross-national frontiers (Nielsen & Nielsen, Reference Nielsen and Nielsen2009; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014), by analyzing the potential scenarios that could take place combining high/low levels of proximity in geographical and institutional dimensions, and how they may enhance or deter innovation activities that bring together partners located across different countries. In addition, this research adds to the KBV of the firm, by explaining how new ventures can gain competitive advantage from the knowledge they obtain from different ties and dissimilar geographical and institutional contexts (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006).
In the next sections, the study first reviews the importance of collaboration networks for new ventures’ innovation performance, from the perspective of the KBV of the firm. Later, the moderating effect of the geographical and institutional distance in such relation is discussed. Finally, the paper presents the main implications of the study, shows some of its limitations, and suggests future lines of research.
BACKGROUND
Collaborative linkages and innovation performance in new ventures
In recent years, there has been a rapid and significant proliferation of interfirm collaborations (Powell, Reference Powell1998; Gulati, Nohria, & Zaheer, Reference Gulati, Nohria and Zaheer2000; Capaldo, Reference Capaldo2007). In broad terms, interorganizational collaborations refer to ‘joint pursuit of agreed-on goal(s) in a manner corresponding to a shared understanding about contributions and payoffs’ (Gulati, Wohlgezogen, & Zhelyazkov, Reference Gulati, Wohlgezogen and Zhelyazkov2012: 533). More specifically, collaborations or alliances represent voluntary interorganizational forms of cooperation that entail significant exchange and sharing of resources, or codevelopment activities, that result in lasting commitment between the partners (Gulati & Gargiulo, Reference Gulati and Gargiulo1999). Two aspects of this definition require attention. First, resources represent a set of tangible and intangible assets (Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001) and, as key inputs into the production process, they can include physical and human resources (Penrose, Reference Penrose2009), but also technological and organizational items – for example, skills of employees, knowledge, patents, or equipment, among other (Grant, Reference Grant1991). Second, in terms of the types of partners, companies are embedded in networks of exchange relationships with other actors that encompass suppliers, customers, competitors, or other organizations (Gulati, Nohria, & Zaheer, Reference Gulati, Nohria and Zaheer2000), such as universities or research centers, among others.
As the relevance of these cooperative agreements increased over time, several theories started analyzing why firms collaborate. Particularly remarkable has been the contribution of the RBV, and more specifically the KBV, to the understanding of strategic alliances (Eisenhardt & Schoonhoven, Reference Eisenhardt and Schoonhoven1996; Inkpen, Reference Inkpen1998). The RBV of the firm states that companies’ strategic resources that are valuable, rare, and costly to imitate constitute a key source of competitive advantage (Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001). The KBV, being more concrete, highlights that knowledge represents the most strategically significant resource firms possess to achieve sustained competitive advantage and superior performance (Nonaka & Takeuchi, Reference Nonaka and Takeuchi1995; Grant, Reference Grant1996; Eisenhardt & Santos, Reference Eisenhardt and Santos2002). Remarkably, knowledge is the key input that nurtures innovation, but tends to be fragmented, specialized, and dispersed (Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014). As companies, and especially new ventures, may not be able to develop internally all the knowledge and resources required to develop and launch new products, alliances are becoming useful mechanisms to obtain, create and develop the knowledge inputs they need to improve their competitive position (Grant, Reference Grant1991; Gulati, Reference Gulati1995; Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001) and boost their innovation performance (Rothaermel & Deeds, Reference Rothaermel and Deeds2004; Diestre & Rajagopalan, Reference Diestre and Rajagopalan2012). Consistent with these ideas, this paper draws on the RBV and KBV of the firm, and proposes that collaborative linkages provide the benefits of knowledge, assets and information sharing and exploitation as well as serve as conduits through which new insights to problems can be discovered (Ahuja, Reference Ahuja2000), constituting key mechanisms for firm competitive advantage and success (Zakrzewska-Bielawska, Reference Zakrzewska-Bielawska2016).
The relation between collaborative linkages and innovation performance has been well studied in the literature (Ritter & Gemünden, Reference Ritter and Gemünden2003; Rosenkopf & Schilling, Reference Rosenkopf and Schilling2007; Schilling & Phelps, Reference Schilling and Phelps2007), and has received considerable attention in the context of new ventures (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000; Rothaermel & Deeds, Reference Rothaermel and Deeds2004; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012). In international business studies, the range of age to characterize new ventures varies from 3 to 6, 8 or 10 years (Madsen & Servais, Reference Madsen and Servais1997; Milanov & Fernhaber, Reference Milanov and Fernhaber2009). In this research, new ventures represent those companies that are 8 years or younger, for several reasons. First, it is one of the thresholds multiple studies on international new ventures have followed (Biggadike, Reference Biggadike1979; Miller & Camp, Reference Miller and Camp1986; McDougall & Oviatt, Reference McDougall and Oviatt1996; Zahra, Reference Zahra1996). Second, this age makes special sense in the context of this study. Firms need partners especially in their initial years, when they suffer more the liability of newness (Milanov & Fernhaber, Reference Milanov and Fernhaber2009). Then, new ventures internalize the resources acquired for particular goals (e.g., innovation), and finally become less dependent on partnerships when they consolidate. This is why many young companies decide to engage in external partnerships over this period of time (i.e., before they become more mature), to add to their network new ties that facilitate new knowledge acquisition, creation, transfer, and exchange, that in turn can be exploited in innovation activities (Deeds & Hill, Reference Deeds and Hill1996; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012). Moreover, because of their access to new opportunities that external ties provide, new companies are able to overcome some of their liability of newness by creating more from less (Zhang & Li, Reference Zhang and Li2010). An additional clarification is that, throughout the manuscript, new ventures that operate in technology intensive fields will be considered. The significant resource and speed to market demands in these sectors encourage new ventures to rely on collaboration linkages not only to exploit emerging technological opportunities (Powell, Reference Powell1998), but also to overcome their initial resource constraints to innovate (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000).
As a central concept to economic development, innovation has to do with doing new things or doing the things that have already been done in new ways (Schumpeter, Reference Schumpeter1947). One of the first and most relevant definitions of innovation was proposed by Schumpeter (Reference Schumpeter1934); it posits that innovation can be defined as the introduction of new or improved goods, new processes, new markets, new sources of supply for inputs, or new organizational solutions. For the purpose of this study, innovation refers to the core renewal process that occurs within an organization, and encompasses the changes in what a firm offers to the world (product innovation), as well as the ways in which it develops and delivers such offerings (process innovation) (Bessant, Lamming, Noke, & Phillips, Reference Bessant, Lamming, Noke and Phillips2005). Thus, innovation performance reflects the firm’s ability to introduce and successfully commercialize new products and develop new organizational processes (Teece, Reference Teece1986; Damanpour & Gopalakrishnan, Reference Damanpour and Gopalakrishnan2001; Tomlinson, Reference Tomlinson2010).
The literature has highlighted that new venture’s ties with different partners, such as established firms, universities, or research institutions, among others, positively affect their innovation performance (Shan, Walker, & Kogut, Reference Shan, Walker and Kogut1994; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012). In an empirical study using a sample of Chinese new ventures, Zhang and Li (Reference Zhang and Li2010) showed that ventures’ ties with service intermediaries (technology service firms, law firms, financial service firms) enabled these companies to connect to these networks and foster new ventures’ product innovation by expanding the scope of their external search for innovation and by reducing the costs of search. Thus, the overall composition of a new venture’s set of arrangements can significantly impact the access to diverse resources and capabilities, that nurture innovation, and this reason justifies why it is so important to consider partners diversity (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000; Huang, Rice, & Martin, Reference Huang, Rice and Martin2015). Colombo et al. (Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009), using the theoretical point of view of resource-based perspectives (Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001), suggest that collaboration networks that are composed of more heterogeneous partners generally have more beneficial effects. Specifically, these authors argue that, on the one hand, partnering with other firms (e.g., incumbent) can be beneficial to gain market knowledge and applied technological expertise. On the other hand, alliances with other organizations (e.g., universities, research centers, scientific institutions, etc.) may be critical to increase new ventures’ absorptive capacity, as they involve basic research. Along these lines, they indicate that new technology-based firms with more collaborations performed better than other new ventures without these linkages, which is consistent with the idea that heterogeneous relationships provide resources and competences that are required for innovative outputs that start-ups typically lack (Shan, Walker, & Kogut, Reference Shan, Walker and Kogut1994; Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000).
Although the potential benefits of collaborations for innovation have been widely recognized, it is also true that new ventures are companies that typically suffer from the liability of newness and smallness (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). Consequently, they tend to face difficulties when seeking partnerships, as they usually have few external contacts (Ozmel, Reuer, & Gulati, Reference Ozmel, Reuer and Gulati2012). Any external search for knowledge or resources could be too costly, and could increase the risk of expropriation of the firm’s valuable resources, because new ventures lack the experience to use contracts effectively and manage large networks or set of collaborations (Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012). Moreover, new ventures may miss the chances to select the right partners that provide the capabilities they need to innovate, as they may rely upon a few closer collaborators that only provide overlapping sources of knowledge. In addition, collaborations can be associated with a variety of risks, such as opportunistic behaviors (e.g., contribute less than agreed, misappropriation of partner resources) or coordination problems (Gulati, Nohria, & Zaheer, Reference Gulati, Wohlgezogen and Zhelyazkov2012). These pitfalls and considerable uncertainty are especially remarkable in the global setting, with disparate ventures from a wide range of countries and national origins, in which a large number of collaboration partnerships take place (Kogut, Reference Kogut1988; Gulati & Gargiulo, Reference Gulati and Gargiulo1999). For this reason, understanding how collaborations that cross-national frontiers affect the innovation performance of companies has become a topic of considerable interest in recent research (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014; Wu, Reference Wu2015).
Recent studies highlight the importance of the internationalization of the firm’s collaboration networks, as alliances with foreign partners are key to acquire new resources and competences that can improve firm performance (Colombo et al., Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009). Accordingly, several authors have started to explore the optimal combination of national and international partners, closer or farther located, to boost different organizational outcomes, such as the speed of internationalization of new ventures’ product innovations. In this sense, Patel et al. (Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014) claim that new ventures that balance local and foreign collaborations to develop an innovation are able to launch their new products into international markets much faster. In addition, these authors indicate that the higher the complexity of the innovation developed, the more important it is to rely upon a geographically balanced network to guarantee a rapid internationalization. In another study, Coombs, Deeds, and Ireland (Reference Coombs, Deeds and Ireland2009) found that a network that is geographically balanced facilitates the development of new products, thanks to the diversity and efficiency of the company’s search processes.
In short, diverse collaborative linkages can contribute significantly to improve new ventures’ innovation performance, for different reasons: first, they make opportunities for innovation more visible; second, they can enrich a start-up’s knowledge pool for producing new combinations, and third, they provide complimentary resources and capabilities critical for product innovation (Zhang & Li, Reference Zhang and Li2010). As pointed out before, these collaborations are becoming increasingly international, as foreign partners can be helpful for resource-constrained young firms starting to operate in foreign markets (Shrader, Reference Shrader2001). Yet, to develop a better understanding of the relation between collaborative linkages and innovation performance in an international scenario, the role of distance cannot be ignored, as it will be discussed next.
The role of the geographical and institutional distance on the relation between collaborative linkages and innovation performance
The distance between collaboration partners has been found to be a contextual factor that can importantly affect companies’ ability to benefit from their external partnerships (Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007; Ben Letaifa & Rabeau, Reference Ben Letaifa and Rabeau2013). From the KBV of alliances, the higher the geographical or spatial distance between actors, the more difficult the transfer of knowledge for innovation purposes in international relations is, because physical proximity is a factor that improves coordination, reduces uncertainty, and favors knowledge combination, transfer, and creation (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006; Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). De Jong and Freel (Reference De Jong and Freel2010), in a study using survey data from 316 Dutch high-tech small firms, that participated in 1,245 partnerships, showed that the vast majority of these companies collaborate with partners in their geographical proximity (e.g., Germany, Belgium), aiming to ease the effectiveness of the collaborative efforts for innovation. In another study, based on a sample of 1,515 interfirm knowledge-creating collaborations, Capaldo & Messeni-Petruzzelli (Reference Capaldo and Messeni-Petruzzelli2014) suggest that geographical distance between partners complicates knowledge integration and has a negative effect on the innovative performance of alliances, although this negative impact could be mitigated when firms belong to the same business group. Still, Fitjar and Rodrigez-Rose (Reference Fitjar and Rodríguez-Pose2013), based on a sample of 1,604 Norwegian firms, found that interactions at a geographical distance enhance the innovation performance of companies, as the heterogeneity of knowledge bases increased. Specifically, firms that cooperated with extra-regional research centers, universities, suppliers, and customers, saw their innovation potential improve considerably in practically several types of innovation (i.e., product, process, radical, and incremental innovation). More recently, Wu (Reference Wu2015), using a sample of 219 Chinese firms, showed that both local (i.e., physically proximate) and international (i.e., physically distant) partnerships provide valuable knowledge that positively affects innovation performance. Yet, one of the main limitations Wu’s study highlights is the lack of attention to other contextual conditions, such as the institutional factors, that could influence the relationships examined.
Institutional theory suggests a set of pillars of institutional environments: regulatory, cognitive, and normative (Scott, Reference Scott1995; Kostova & Zaheer, Reference Kostova and Zaheer1999; Gaur & Lu, Reference Gaur and Lu2007). The regulatory pillar reflects the rules and laws in a nation that foster particular behaviors and prevents others, in order to ensure order in societies (Kostova & Roth, Reference Kostova and Roth2002; Gaur & Lu, Reference Gaur and Lu2007). To be legitimate, firms need to comply with the explicit requirements of the regulatory system (Kostova & Zaheer, Reference Kostova and Zaheer1999). The cognitive pillar refers to widely shared cognitive categories and shared social knowledge in a specific country (Kostova & Roth, Reference Kostova and Roth2002). To achieve legitimacy, organizations need to be consistent with such cognitive structures established in society (Kostova & Zaheer, Reference Kostova and Zaheer1999). The normative component refers to the beliefs, values, assumptions held by humans in a given country (Kostova & Roth, Reference Kostova and Roth2002). From this perspective, organizational legitimacy comes from the congruence between societal values and those pursued by the organization (Parsons, Reference Parsons1960). Based on these key institutional dimensions, institutional distance has been defined as the extent of similarity or dissimilarity between the regulatory, cognitive, and normative institutions of any two countries (Kostova & Zaheer, Reference Kostova and Zaheer1999; Gaur & Lu, Reference Gaur and Lu2007).
The institutional distance captures the variety of ways in which partners may differ based on their national business, governance, and innovation systems (capacity to create knowledge and to innovate) (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010). The level of education in a country, technological and economic development, and even language, are established by the institutional system (Li & Scullion, Reference Li and Scullion2006). As studies on national innovation systems note, the institutional context of a country may play a key role in explaining patterns of innovation (Nelson, Reference Nelson1993; Almeida & Phene, Reference Almeida and Phene2004). Remarkably, partners that participate in collaborative arrangements bring with them diverse institutional affiliations, with the consequent institutionalized rules and resources that this involves (Phillips, Lawrence, & Hardy, Reference Phillips, Lawrence and Hardy2000). In turn, this can alter not only the likelihood of success of the cooperation, but also the production of innovation outcomes that result from such agreement (Vasudeva, Zaheer, & Hernandez, Reference Vasudeva, Zaheer and Hernandez2013). As Boschma (Reference Boschma2005) states, institutional proximity, characterized by same rules of the game, shared trust, cultural values, similar law systems securing intellectual property rights, etc., supports the transmission of knowledge and information more easily, promotes interactive learning, and favors the development of innovations.
Recent studies show that the influence of the interplay between the geographical distance and the institutional distance has been traditionally overlooked, and only a few authors have attempted to overcome this gap. In this sense, Phene, Fladmoe‐Lindquist, and Marsh (Reference Phene, Fladmoe‐Lindquist and Marsh2006) noted the need to understand the interplay between technological distance (i.e., knowledge outside the industry) and geographical origin of knowledge (i.e., national or international context), and how it affects breakthrough innovations. Their findings show that it is the interaction of technological and geographical distances what enables firms to develop innovations. As Phene et al. state: ‘technologically distant knowledge of national origin has a curvilinear effect and technologically proximate knowledge of international origin has a positive effect on breakthrough innovation. However, simultaneous exploration along technologically and geographic dimensions is not useful to generating breakthrough innovation; technologically distant knowledge of international origin does not have a significant impact’ (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006: 369). In another recent research, Capaldo, Lavie, and Petruzzelli (Reference Capaldo, Lavie and Petruzzelli2014), based on the analysis of 5,575 biotech patented innovations, conclude that a way to maximize innovation value consists on balancing ‘distant knowledge in the geographical domain (i.e., exploration) while investing in local search in the technological domain (i.e., exploitation)’ (Capaldo, Lavie, & Petruzzelli, Reference Capaldo, Lavie and Petruzzelli2014: 26). Taking a more holistic approach, Ponds, Van Oort and Frenken (Reference Ponds, Van Oort and Frenken2007), using data on co-publications and studying the spatial features of interorganizational collaborations in knowledge production in the Netherlands, found that the physical or geographical proximity is particularly important for successful collaborations when organizations present different institutional backgrounds.
Despite the significant contributions the studies just cited make to the literature, we still lack a more complete framework that tackles, from a knowledge-based perspective, the potential scenarios that could arise as a combination of knowledge proximity/distance along geographical and institutional dimensions. As already noted, since these are critical contingencies that can affect innovation performance, a deeper theoretical discussion requires their analysis. Moreover, none of these studies have focused on new ventures as the unit of analysis. Figure 1 highlights the main ideas of the theoretical framework that will be presented next.
Collaborative linkages effects on new ventures’ innovation performance under different contextual conditions
THEORETICAL FRAMEWORK
When the geographical and the institutional distances are both lowFootnote 1 , it is easier to transfer knowledge, thanks to face-to-face contacts and common schemes (Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007). Also, the new venture and its partners may share similar backgrounds, including culture, norms, and values (Paniccia, Reference Paniccia1998), as well as business practices, due to the likeness of the institutional contexts where they are. Overall, these factors promote open communication and increase trust thereby facilitating knowledge flows (Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003; Bell & Zaheer, Reference Bell and Zaheer2007). Specifically, the ability to absorb and exploit the sources of knowledge and resources that come from such external entities is conditioned by a firm’s own expertise and experience (Nelson & Winter, Reference Nelson and Winter1982; Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003), which is quite limited in the case of new ventures (Zahra, Reference Zahra2005). Thus, although larger and established firms are able to benefit especially from remote locations, thanks to using their resources to mitigate the negative impact of distance (Nachum, Zaheer, & Gross, Reference Nachum, Zaheer and Gross2008), that does not seem to be so applicable to young firms. One could argue that Information and Communication Technologies are converting the world into an homogeneous place, facilitating cross-border knowledge management, but this is somehow limited, given the tacit nature of local knowledge (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010). Thus, accessing and transferring knowledge and resources is more likely to be successful when partners’ countries geographical and institutional distances are low (Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007).
A problem associated with distance concepts is the implicit assumption that similarity is always the best option (Zaheer, Schomaker, & Nachum, Reference Zaheer, Schomaker and Nachum2012). However, sometimes diversity can be particularly advantageous for improving creativity and gaining access to more varied sources of knowledge for producing novel outcomes (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006; Nachum, Zaheer, & Gross, Reference Nachum, Zaheer and Gross2008). Some authors acknowledge that foreign partners, embedded in different systems from that of the focal new company, may offer diverse capabilities that can produce synergistic gains when combined with new companies’ abilities, therefore opening up greater learning opportunities and higher performance (Colombo et al., Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009). In this line, some scholars support the benefits of cooperating with disconnected partners, as too much geographical and institutional proximity may be detrimental for innovation (Ben Letaifa & Rabeau, Reference Ben Letaifa and Rabeau2013). However, if it is easier and less costly to access and exploit knowledge in close areas (Jaffe, Trajtenberg, & Henderson, Reference Jaffe, Trajtenberg and Henderson1993; Leamer & Storper, Reference Leamer and Storper2001), this may be the optimal scenario for new ventures to take advantage of their broad collaborative linkages for innovation purposes. Moreover, greater differences among partners, due to a high geographical and institutional distance, may increase uncertainty by limiting knowledge flows, and raising the risks and costs of doing businesses with international actors (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010), negatively affecting the potential benefits derived for the firm’s innovation performance.
In the opposite scenario, when both the geographical and institutional distance between partners are high, problems related to geographically distant partners, diverse national institutional regimes (Castellani, Jiménez, & Zanfei, Reference Castellani, Jimenez and Zanfei2013), and young companies lack of resources (Zhang & Li, Reference Zhang and Li2010), could seriously undermine new ventures ability to exploit international partnerships to innovate. Non-codified and tacit knowledge, which is key to develop innovative ideas that can be integrated into new products and processes, is expected to be best transmitted when there are close, personal, sensory-rich interactions (e.g., through meetings, seminars, workshops) that are more common when geographical distance is low (Ganesan, Malter, & Rindfleisch, Reference Ganesan, Malter and Rindfleisch2005). Coupled with that, institutional distance provides less reliable and predictable conditions to favor knowledge transfer and effective communications (Hong & Yu-Sung, Reference Hong and Yu-Sung.2013) – a topic of crucial relevance for new ventures that may not possess much experience in dealing with external partners in international settings (Sapienza, Autio, George, & Zahra, Reference Sapienza, Autio, George and Zahra2006). These adverse conditions can create substantial problems to exploit the knowledge and resources shared (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006; Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010), and lead to a lack of understanding and poor coordination. Based on these arguments:
Proposition 1a: When the geographical and the institutional distances between the new venture’s and the partners’ countries are low, the positive effect of collaborative linkages on innovation performance will be stronger.
Proposition 1b: When the geographical and the institutional distances between the new venture’s and the partners’ countries are high, the positive effect of collaborative linkages on innovation performance will be considerably low.
Another possible scenario could take place when a new venture is geographically proximate to its foreign partner but, however, the institutional distance between the countries where both partners are located is high. Conversely, the focal young firm could be far geographically located from its collaborator, but still share a common institutional background. In these cases, the geographical proximity can compensate for the lack of institutional proximity. And, the other way around, institutional closeness can facilitate partners’ interaction over long geographical distances (Boschma, Reference Boschma2005; Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007). This is consistent with the idea that long distances need other types of complementary proximities to facilitate closeness (Ben Letaifa & Rebeau, Reference Ben Letaifa and Rabeau2013), because distance itself can reduce communication, mutual understanding, and trust, which would complicate international knowledge and resource management (Castellani, Jiménez, & Zanfei, Reference Castellani, Jimenez and Zanfei2013).
Importantly, under this scenario, the institutional differences will be more difficult to overcome. Greater differences in the informal dimension of the institutional distance, such as ideology, values in society, and the formal dimension, such as ‘rules of the game’ that regulate business transactions, increases the risk of collaborating with very dissimilar partners (Gaur & Lu, Reference Gaur and Lu2007), and the gains new ventures can get from them. The risks involved for new ventures could be too high, not only for the need of implementing complex coordination and communication mechanisms (Colombo et al., Reference Colombo, Grilli, Murtinu, Piscitello and Piva2009), but also for the possibility of adverse selection and moral hazard with dissimilar foreign partners, and the constraints related to knowledge sharing activities in distant institutional domains (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). Thus, geographical proximity could smooth such negative impact, making new ventures be able to exploit the potential advantages derived from their collaborations with institutional different partners. As such, personal contacts and nonverbal cues may allow collaborators to certify the trustworthiness of their counterparts, what in turn improves partners’ motivation to share resources and facilitates knowledge sharing and exploitation (Bell & Zaheer, Reference Bell and Zaheer2007).
On the other side, although a high geographical distance complicates the transfer of knowledge (Rosenkopf & Almeida, Reference Rosenkopf and Almeida2003), it is a barrier that can be more easily overcome. In today’s globalized world, new ventures need to combine key sources of knowledge from different countries to develop and launch their products faster (Subramaniam & Venkatraman, Reference Subramaniam and Venkatraman2001). Through physical separation in space, actors (e.g., scientists) can readily cooperate over geographical distances thanks to the use of a standardized and common code (e.g., publications). Also, new ventures can benefit from Information and Communication Technologies, that can facilitate access to knowledge and technological discoveries globally dispersed and required to innovate (Ponds, Van Oort, & Frenken, Reference Ponds, Van Oort and Frenken2007; Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010). Along these lines, Ganesan, Malter, and Rindfleisch (Reference Ganesan, Malter and Rindfleisch2005), in an empirical study using data of 155 firms in the US optics industry, found that through face-to-face interactions, that typically take place in relatively close geographical areas, firms do not acquire the types of knowledge that improve the development of novel products. Conversely, Ganesan et al. suggest that electronic communication increases creativity and development speed, supporting the idea that people and scientists can work effectively in joint-projects without meeting in person. Assuming that some kind of distance exists when collaborating with external partners abroad, the case where the geographical distance is high, but the institutional distance among partners is low, may be still quite advantageous for new ventures’ innovation performance. These collaborations may be efficient, by offering new ventures access to richer sources of information and capabilities, while simultaneously reducing the costs of redundancy and conflict (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000). Under these circumstances, ventures can benefit from the knowledge diversity that enhances novel re-combinations and nurtures significant innovation outcomes (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006), while also leveraging the mistrust and lack of understanding that arises when cultural values, backgrounds, and business practices differ (Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014).
In a context involving international collaborations, a new venture’s ability to benefit from the cultural facets, knowledge diversity, and different institutional regimes through foreign partnerships becomes critical, and conditions technological opportunities for innovation (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). The development of knowledge, as a key input for innovation, is highly context-specific, dependent on the environment, and follows specific and distinct trajectories across geographical boundaries, that in turn affect the firm’s ability to develop novel outcomes (Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). New venture’s absorptive capacity, managerial skills, and experience are usually limited (Deeds & Hill, Reference Deeds and Hill1996; Diestre & Rajagopalan, Reference Diestre and Rajagopalan2012), and therefore the existence of structural conditions such as cultural compatibility and relatedness of business will be necessary for these companies to be able to understand and exploit knowledge from foreign partners (Lane, Salk, & Lyles, Reference Lane, Salk and Lyles2001; Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006). Based on these arguments:
Proposition 2a: When the geographical distance is high, and the institutional distance between the new venture’s and the partners’ countries is low, innovation performance will be moderate-high.
Proposition 2b: When the geographical distance is low, and the institutional distance between the new venture’s and the partners’ countries is high, innovation performance will be low.
DISCUSSION AND IMPLICATIONS
Over the last two decades, new ventures have increased their participation in collaborative linkages around the world to overcome their liability of newness and enhance their ability to innovate (Zhang & Li, Reference Zhang and Li2010; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). Following the RBV (Barney, Wright, & Ketchen, Reference Barney, Wright and Ketchen2001) and KBV (Grant, Reference Grant1996) lens, collaborations provide a venture with access to resources, knowledge, information and technologies that may be key to improve their competitive position (Gulati, Nohria, & Zaheer, Reference Gulati, Nohria and Zaheer2000; Jeong, Reference Jeong2014). Innovation emerges from the combination of complementary and different pieces of knowledge that tend to be specialized, fragmented, and dispersed across different countries (Henderson & Clark, Reference Henderson and Clark1990; Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014), and that new companies typically lack.
Despite the fact that external partnerships can promote new ventures’ knowledge creation, transfer, sharing, and successful exploitation (Deeds & Hill, Reference Deeds and Hill1996; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012), not all collaborative ties do so in the same way (Bell & Zaheer, Reference Bell and Zaheer2007). Depending on their geographical and institutional proximity, these collaborations may complement or substitute each other (Boschma, Reference Boschma2005; Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014). Adopting the KBV, this study advances a conceptual framework to explore the conditions under which the interplay between the geographical and institutional dimensions of distance may enhance or lower the positive effects of collaborative linkages on innovation performance. To do so, potential scenarios that could take place have been analyzed (presented in Figure 1), to explain how they affect knowledge creation, transfer and exploitation for innovation purposes, specifically in the context of new ventures that engage in international partnerships.
This paper contributes to the literature on new ventures, international collaborative linkages, and innovation (Baum, Calabrese, & Silverman, Reference Baum, Calabrese and Silverman2000; Haeussler, Patzelt, & Zahra, Reference Haeussler, Patzelt and Zahra2012; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014) in several ways. In a global world, whereas knowledge located in the geographical proximity can be obtained at a lower cost, and may be more easily transferred, international knowledge is key to avoid rigidities and competence traps that result from local search, and ensure the novel, sophisticated, and rich knowledge sources required to promote discovery (Wu, Reference Wu2015). Thus, new ventures need to find the optimal balance to boost their ability to innovate thanks to their external partnerships (Coombs, Deeds, & Ireland, Reference Coombs, Deeds and Ireland2009). The proposed conceptual model suggests that the most beneficial setting may occur when partners are proximate in geographical and institutional terms. Lower geographical and institutional distances may promote greater face-to-face interactions, the development of strong ties, increased trust, the acquisition of non-codified and tacit knowledge (Ganesan, Malter, & Rindfleisch, Reference Ganesan, Malter and Rindfleisch2005), and better knowledge creation and integration, as it requires continuous interdependence and mutual adjustment between partners (Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014). Yet, we should not ignore the possibility that too much physical and institutional proximities can decrease the innovative potential, because the embodiment and re-combination of diverse and heterogeneous valuable knowledge inputs, that may reside in multiple countries and comes from different domains, has been found to be key to access the latest technological developments (Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014).
By pursuing dissimilar international collaborations, new ventures may benefit from more varied sources of knowledge, learning experiences, and greater chances for discovering new market opportunities and products to offer (Zahra, Reference Zahra2005). Thus, geographical distance may still be desirable, as its negative effects may be more easily overcome with electronic communications or common scientific languages (Parida & Westerberg, Reference Parida and Westerberg2007), and compensated with similar institutional backgrounds (Ponds, Van Oort & Frenken, Reference Ponds, Van Oort and Frenken2007). However, when partners’ mental schemas, values, rules in legal systems, and business practices are quite distinct, greater risks derived from coordination problems, uncertainly, and opportunistic behaviors may arise (Hong & Yu-Sung, Reference Hong and Yu-Sung.2013), complicating knowledge transfer and integration. In this scenario, given the limited experience and absorptive capacity new ventures usually possess, and the difficulties in dealing with too diverse partners, it may be particularly hard to fully take advantage of rich and heterogeneous collaborations to develop new insights (Sapienza et al., Reference Sapienza, Autio, George and Zahra2006). Thus, the most detrimental scenario to support discovery and innovation may be the one characterized by high geographical and institutional distances.
This study also contributes to the KBV of the firm (Kogut & Zander, Reference Kogut and Zander1992; Grant, Reference Grant1996). It illustrates how new ventures may be able to improve their innovation performance and gain competitive advantage because of the knowledge they acquire from diverse geographical and institutional contexts and different kinds of ties (Capaldo & Messeni-Petruzzelli, Reference Capaldo and Messeni-Petruzzelli2014; Patel et al., Reference Patel, Fernhaber, McDougall‐Covin and van der Have2014). It also helps to show key contingencies that influence this complex but important relationship.
LIMITATIONS AND FUTURE RESEARCH
This research has several limitations that suggest future research lines. First, the study presents a conceptual framework, inviting future studies to perform empirical analyses and test the theory presented here. Further, future research could provide a deeper understanding on this field if it also explored how some key internal resources and capabilities affect new ventures’ ability to produce novel outcomes using the resources obtained from their international counterparts. In particular, it may be interesting to explore the role absorptive capacity plays; that is, the firm’s ability to acquire, assimilate, transform, and exploit external knowledge (Zahra & George, Reference Zahra and George2002), when companies try to benefit from knowledge sources that come from dissimilar international contexts. In addition, future research could tackle the role of information and communication technologies in collaborations that bring together partners from multiple locations (Parida & Westerberg, Reference Parida and Westerberg2007). Information and communication technologies have been found to reduce the negative effects of geographical distance. However, they might not overcome the problems associated to the transfer of tacit knowledge (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010), that is particularly valuable to nurture innovation and constitute the basis of competitive advantage (Grant, Reference Grant1996; Eisenhardt & Santos, Reference Eisenhardt and Santos2002). Future research should clarify this controversy.
Though the relevance of the geographical and institutional distances have been widely acknowledged in the international business literature, when considering transactions involving actors residing in different countries (Berry, Guillén, & Zhou, Reference Berry, Guillén and Zhou2010; Castellani, Jiménez, & Zanfei, Reference Castellani, Jimenez and Zanfei2013), more dimensions of the distance construct could be considered, such as cultural distance or technological distance (Boschma, Reference Boschma2005; Li & Scullion, Reference Li and Scullion2006; Phene, Fladmoe‐Lindquist, & Marsh, Reference Phene, Fladmoe‐Lindquist and Marsh2006). Finally, other useful variables related to the characteristics of ties could be also examined. As previous studies note, the firm’s ability to innovate will be also conditioned by how strong/weak ties between collaboration partners are (Granovetter, Reference Granovetter1973). Strong ties can lead to less opportunistic behaviors, greater level of trust, sustainable collaborations (Tomlinson, Reference Tomlinson2010), solidarity benefits, exchanges of tacit information, and frequent communication that improves innovation (Rost, Reference Rost2011). However, in the context of new ventures with international partners, Prashantham and Young (Reference Prashantham and Young2011) highlight that weak ties may be especially useful to provide new, diverse, and nonredundant sources of information, that lead to a greater breadth of new knowledge, and can allow access to innovative inputs related to the market and technological trends. Thus, a more detailed analysis, involving additional dimensions – for example, strong/weak ties, formal/informal relations (Ripollés & Blesa, Reference Ripollés and Blesa2016), or social/business networks (Boso, Story, & Cadogan, Reference Boso, Story and Cadogan2013) – could complement and deepen our knowledge on the topic discussed.
CONCLUSIONS
This study has addressed the following research question: How do the geographical and institutional distances between the new venture and its partners affect the relation between collaborative linkages and innovation performance? The conceptual framework proposed suggests that only when distance dimensions constitute external favorable conditions for innovation (i.e., low institutional distance, or low or high geographical distance, that can be more easily overcome), collaborative ties may tend to be more useful to improve new ventures innovative performance. In the opposite scenario, new ventures may face important difficulties to innovate given the knowledge integration problems and the costs derived from partnerships that involve actors from very dissimilar institutional contexts. Overall, the research encourages discussion on a topic of crucial importance for new ventures’ success, and raises several issues that require attention in future research: understanding under what conditions new ventures’ international collaborations lead to an increase in these ventures’ innovation performance.
Acknowledgments
The author is very grateful to Shaker A. Zahra for his valuable insights and comments on this article. Patricia H. Zahra provided many useful editorial suggestions. The author would like to thank participants at the ESADE Entrepreneurship Institute Research Seminar (December 2014) for inspiring discussions. She acknowledges the support from the ECO 2012-31780 project (Ministry of Science and Innovation of Spain).
