Knowledge-Based Services, Internationalization and Regional Development

Peter Daniels, James W. Harrington

• Publisher: Routledge
• Year: 2017
• eBook ISBN: 9781351923897
• Topic: Business
• Subtopic: Business Education
• Index: Business

The acquisition and management of information is central to the operation and marketing of many service-providing firms and other organizations. Their varied knowledge requirements influence approaches to organizational structure, relationships to other organizations, the location of operations, and entry into new markets. In this book, an international and interdisciplinary team of leading scholars examines the attributes of knowledge acquisition and diffusion within and across service-providing organizations. Using a variety of case examples, they pay particular attention to the processes of internationalization and the ways in which service-providing organizations affect regional economic development.

Chapter 1
International and Regional Dynamics of Knowledge-Based Services

James W. Harrington and Peter W. Daniels

This volume presents research addressing the organization, international relationships, and regional economic impacts of a broad set of service-providing activities. These activities include the widely studied ‘knowledge-intensive business services,’ but go beyond these to recognize knowledge creation and dissemination in the post-secondary education sector and the knowledge about markets and value chains that underlies the burgeoning mail-order and e-tourism sectors. While the research proceeds from varied theoretical perspectives, the chapters overall spring from three major premises, explained in turn in the following pages.

1. The acquisition and organization of knowledge (information combined with context to yield useful guidance) are central to the operation and marketing of many service-providing activities.
2. These requirements motivate the organizations’ structure, relationships to other organizations, location of operations, and entry into new markets.
3. Because the knowledge requirements vary by service sector and the opportunities for organizations’ structure and relationships vary by local context, sector- and location-specific studies are necessary to explore the nature of these contingent relationships.

Information, Knowledge, and Competences: Importance

We read constantly of the 21^st century’s ‘knowledge-based economy: a new historical era where the economy is more strongly and more directly rooted in the production, distribution and use of knowledge than ever before’ (Foray and Lundvall 1996, 12). However, economic activity remains quite material, with a major stake in the flow of energy, goods and physical investment. What are the sources of organizations’ economic success and sustainability? The record profits made by major oil companies and the economic power of huge companies such as Wal-Mart remind us that the ability to exploit a scarce resource and the ability to exert market power on suppliers remain important. However, the management of knowledge about markets, suppliers, finance and innovation underlies these successful companies, and successful not-for-profit activities (Porter 1990). To quote Freeman (1982, 4) ‘the investment process is as much one of the production and distribution of knowledge as the production and use of capital goods, which merely embody the advance of science and technology.’

While Sayer and Walker (1992) shun labels that imply major shifts in the nature of capitalism, they imply quite clearly that they see the proliferation of specialist business service firms as a way of commodifying expertise and making it necessary for successful competition. Therefore the capitalists controlling firms engaged in certain activities are compelled to pay knowledge-service entities a profit above their own cost of producing and disseminating expertise. In their view, the rise of the service economy is just a manifestation of an ever-increasing division of labor, subject to the same logic as the rest of capitalism. The increased commodification of knowledge has led to a spate of corporate entities to help protect and broker ‘intellectual property.’

Information, conceptualized and contextualized to serve as useful knowledge, forms the major input, the major product, and a primary strategic asset for many service providers – across private, public, and not-for-profit sectors. Pure knowledge, of course, is of limited utility. The organizational literature focuses on usable knowledge, or competences. ‘By "competence,"’ Foss (1996, 1) ‘understands a typically idiosyncratic knowledge capital that allows its holder to perform activities … in certain ways, and typically do this more efficiently than others.’ Foss notes explicitly how much this owes to the strategic approach to studying firms and competition, originating from the Harvard Business School and Michael Porter’s emphasis on competitive strategy (see Prahalad and Hamel 1990). More simply, Belussi and Gottardi (2000) distinguish (raw) information, (codified and tacit) knowledge, and (organizational) competence, which is the ability to deploy knowledge to improve production, marketing and competitiveness.

Loasby (1996, 41) outlines two dimensions along which organizations must assess and manage their competences: ‘the degree of specificity’ of application and ‘the degree of control’ – how well and how exclusively does the firm control the competence. Note that owning or internalizing a competence is a capital investment that may not bring a return if the competence is so specialized that it’s never or seldom needed, or if mere ‘ownership’ is insufficient for its use (it may need complements; it may need greater expertise in other parts of the organization; it may be embodied in individuals in whom the firm has invested, but who then leave the firm). On the other hand, not owning a competence elicits the costs of identifying, paying, and monitoring an external source of the competence – and even then, internal complements may be required.

Claiming competence is of special importance to service firms’ marketing. Clients are forthcoming because the highly differentiated nature of knowledge and expertise relevant to organizations’ operations, innovation and competition leads some firms to consult outside expertise. Bryson (1997) suggests two key reasons: to substitute for in-house capability, thereby ‘only employing experts when they are required’ (100); and to augment in-house expertise, including to gain expertise/insight that may have been used by competitors. ‘Business service firms, by operating as innovation transfer agents, may be responsible for the dynamic nature of organizational structures and operational procedures’ (101).

Knowledge Acquisition and the Organization of Spaces

Knowledge acquisition and organization motivate the processes through which these providers gain their inputs, interact with other organizations, hire and train their workers, and service their markets. However, inter-firm or intra-firm divisions of knowledge are even more difficult to manage and coordinate than divisions of labor. ‘Indeed, the finer the division of labor and of knowledge, the greater the expertise that results, but also the greater is likely to be’ the difficulties of coordination, because individuals’ or firms’ deeper expertise often implies ignorance over a broader area outside their expertise (Loasby 1996, 41).

Innovativeness is a motivation for knowledge-based firms’ procurement, hiring, location, production, and marketing. Oerlemans and Meeus (2005) asked managers of 365 Netherlands firms (in manufacturing and service sectors) about the nature of ‘external contributions to the innovation process’ (98). They specified 12 possibilities, and performed factor analysis to come up with four factors:

• F1: ‘intermediaries’: chambers of commerce; trade organizations
• F2: ‘educational institutes’: general universities; technical universities; colleges; vocational institutes
• F3: ‘business agents’: important buyers; important suppliers; competitors
• F4: ‘innovation advisors’: ‘national centre for applied research’; ‘innovation centres’; ‘consultants.’

They concluded that firms’ internal characteristics and external linkages are key determinants of innovativeness, and it is insufficient to assume that external linkages for innovation will occur because of regional characteristics. However location and co-location are powerful influences on the intra-organizational and external knowledge of which firms can avail themselves.

From a geographic perspective, these processes influence the paths that knowledge-based service providers take as they attempt to gain footholds in international markets, and the ways in which services providers operate under varied local circumstances. Geographers suggest that repeated interaction (which is made more likely through proximity – but is distinct from proximity) reduces the costs of identifying and monitoring external sources of competence, thereby increasing the feasibility of a fine division of knowledge.

However, for continuous innovation, widespread links may be more important than localized links to information and knowledge. Cooke et al. (2005) surveyed 455 SMEs (of 3600 to whom the survey was mailed), grouped into five sectors, across 36 administrative regions of the UK, across all 12 UK Standard Regions. ‘Innovative firms tend to make greater use of collaboration and information

Table 1.1 Information requirements and locational motivations of information-based services

Type of service	Information/knowledge requirements	Geographic reference points	Locational motivation
Back offices	routine information	no need for proximity to clients	cost driven
Interpersonal services	structured information exchange	market based	driven by access to clients and to skilled workers
Highly specialized services	create or apply knowledge in novel situations	skill and interaction based	driven by access to skills and creativity base

exchange, be involved in higher trust relationships, and make greater use of non-local networks … Overall, our pattern of results suggests that ‘firm’ effects are more significant than ‘regional’ effects per se; certain types of firms (e.g., innovators or knowledge businesses) tend to make greater use of particular forms of social capital and, typically, there are greater numbers of these firms in the more favoured regions’ (1074).

‘Services’ are a notoriously heterogeneous set of activities. To increase its coherence, this volume focuses on knowledge-based services. However, not all of these rely on the creating and marketing of totally new knowledge. Table 1.1 augments Illeris’s (1994) levels of knowledge intensity among information-intensive services and the implications for location of their activities.

With regard to highly specialized services, Simmie (2005, 798) emphasizes the importance of (a) information exchange and diffusion by way of international service firms, and (b) the concentration of these firms’ major offices in the larges cities in wealthy countries, motivated by the location of both key clients and key sources of highly trained personnel. ‘Because such workers tend to “stick” to their regional labor markets, this raises the propensity for innovative activities to concentrate in the same region throughout all phases of their life cycles (Audretsch and Feldman 1996).’ However knowledge-based and highly specialized services appear in every type of region, in nearly every country. The following chapters portray this variety of locations, locational change and economic impact.

Purposes and Organization of this Volume

This book is motivated by a need to move beyond the study of ‘knowledge-intensive business services’ to a broader set of organizations that provide services based on knowledge. As noted above, it has three major premises:

1. Knowledge acquisition and organization are central to the operation and marketing of many service-providing organizations.
2. These requirements motivate the organizations’ structure, relationships to other organizations, location of operations, and entry into new markets.
3. Because the nature of knowledge requirements vary by service sector and the opportunities for organizations’ structure and relationships vary by local context, sector- and location-specific studies are necessary to explore the nature of these contingent relationships.

This book offers theoretical and empirical insights into these processes and paths. Each author ultimately emphasizes the special attributes of knowledge acquisition and diffusion within and across organizations, and the consequent roles that these structurally important firms and institutions play in regional economic development. Conceptually, the authors rely on and add to industrial organization, spatial interaction, transactions costs and regional economic structure/structural change.

Part 1

The remainder of the volume comprises 13 chapters in 3 sections. The chapters in Part 1: ‘Conceptualising Knowledge-Based Services,’ describe what these activities have in common, how they obtain and develop knowledge, and what roles they play in broader systems of innovation.

In ‘Service Worlds and the Dynamics of Economic Spaces,’ Sam Ock Park (Seoul National University) considers spatial interaction in the context of advanced services, and the consequent dynamics of economic spaces. Transferability, knowledge-genesis, networks, collaboration, and hierarchy of control are suggested as key determinants of spatial interaction among knowledge-based activities. Intensified spatial divisions of labor, clustering of advanced services, internet-based services, globalized networks of services, and virtual innovation clusters are identified as the major influences on the dynamics of economic spaces in service worlds. In-depth surveys regarding electronic commerce by Samsung Electronics and innovation networks in the Sunchang region support the importance of these interaction determinants. The dynamic integration of these determinants of interaction in the knowledge-based information society has resulted in the dynamic and controversial economic spaces in core and peripheral areas such as clusters and global networks; intensified spatial division of labor and virtual innovation clusters. Park concludes by drawing policy implications for developing areas or peripheral regions.

In ‘Knowledge Intensive Services and R&D Diffusion: An Input-Output Approach,’ José Camacho and Mercedes Rodríguez (University of Granada) start from the premise that service activities are dramatically increasing their participation in the production processes and, as a result, they account for the bulk of the value added in most industries. Within this context, Camacho and Rodriguez calculate the embodied R&D flows that are generated in the supplying of services in six European countries: Denmark, Finland, France, Germany, Spain and the United Kingdom. The results obtained demonstrate the strategic role that services, and in particular knowledge-based services, play in innovation diffusion.

In ‘Innovation and Technological Change in Tourism: A Global-Local Nexus,’ Christian Longhi (CNRS and University of Nice Sophia Antipolis) focuses on the ways in which technological and organizational innovations have dramatically altered the organization of and markets for tourism. The tourism sector has not only been able to absorb the knowledge bases and technological changes of related provider sectors, but has worked as an engine of change with strong capabilities for innovation. E-tourism encompasses a huge share of e-commerce, and several related technologies have been developed by the main actors in the tourism sector. This chapter’s study of tourism services underlines the interdependence among business models, organizational forms, and technologies. Internet-based and -enabled technologies have shifted the locus of power within supply chains, led to new corporate forms and combinations, and have affected the ability of localities to create and market tourist experiences. Europe is a center of tourist activity and of the changes that have developed. By establishing a framework for the study of structural change in tourism, Longhi deciphers the changes in Europe to date and makes some forecasts for the future.

Part 2

The chapters in Part 2 explore processes and implications of the internationalization of services. How do...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Contributors
• Preface
• List of Abbreviations
• 1 International and Regional Dynamics of Knowledge-Based Services
• PART 1: Conceptualizing Knowledge-Based Services
• PART 2: Internationalization of Service Firms
• PART 3: Knowledge-Based Services and Regional Development
• Index