The impact of geographical proximity and technology on firms’ R&D- operations Martin Johanson Department of Business Studies, Uppsala University Box 513, 751 20 Uppsala Martin.johanson@fek.uu.se and Department of Social Sciences, Business Administration, Mid-Sweden University Heléne Lundberg Department of Social Sciences, Business Administration, Mid-Sweden University Abstract This paper deals with firms’ R&D-operations and how they are influenced by geographical proximity to other firms and organizations and the firm’s technology. The paper discusses geographical proximity as geographical distance to business partners like customers and suppliers and to universities and other types of academic research institutes. The firm’s technology is analyzed in terms of either an incremental and gradual development in small step or a rapid and step-wise development. A model combining these two aspects are presented in the paper and subsequently applied on a sample of 37 high-technology firms in the Swedish region of Mälardalen. The paper concludes that both these two dimensions have an impact on the firms’ R&D-operations, depending on the firm’s size, age and industry. Keywords: geographical proximity, network, technological development, industry, knowledge, research and development Introduction That firms tend to aggregate in clusters has been known and discussed for a long time. However, standard agglomeration theory still followed neoclassical economics in regarding even aggregated firms as atomistic competitors. Later on, modern industrial district theory focused on the regional aspect and brought the interdependence among firms into focus stressing flexible firm boundaries, co-operative competition and trust as facilitators of learning and knowledge development (Harrison 1992). Industrial district theory regards spatial proximity as the basic success factor of regional cluster as it facilitates personal interaction. Personal interaction in various circumstances and settings form a social embeddedness that in turn facilitates a development of trustful relationships. Colleagues in related firms are however only one of several potential sources of proximity advantages. A firm may be situated in geographical proximity of related firms: similar firms, complementary firms, customers or suppliers, unrelated firms, universities and research institutes etc. Different kinds of advantages, or disadvantages, can be expected for different categories of geographical proximity. Furthermore, the value of a location in geographical proximity of a certain category may vary across industries. A number of studies have been undertaken regarding the value of different objects of proximity. However, most research has been carried out in one kind of industry at a time. Empirical studies of industrial districts have focused on two kinds of industries: high technology and crafts (Wilson 1995), but there is a lack of empirical research comparing networking across industries at firm level. A preliminary comparison of the results presented so far indicates that networks in different industries are different but we lack studies looking further into this question (Neergaard 2000). Further research on knowledge spillovers from science to industry that distinguish between different fields of technology has been asked for (Cantwell and Piscitello 2005). We know that industrial contexts differ in terms of velocity of change, 1