Product development, innovation networks, infrastructure and agglomeration economies

The continuos inflow of new products is a fundamental condition for a well-functioning market economy. It has been argued that new products are the outcome of a process which is based upon the principle "novelty by combination". This characterization applies well to the type of product development analyzed in this paper, which comprises the development of new products and the renewal of old products in the Swedish engineering industry through the adoption of a specific type of innovation, namely the incorporation of information technology based components and their pertinent software, i.e. microelectronics. According to the theoretical perspective presented in the paper, a new or a renewed product may result from "random collisions" or from a cautious matching between technical opportunities and customer needs. A necessary condition for such "collisions" or matching to occur is communication and, hence, communication in innovation networks is one key factor in product development. The empirical part of the paper contains an empirical test of the role of establishment characteristics, innovation networks, infrastructure endowment and agglomeration economies for the first use of micro-electronics in product development at the plant level. The empirical results seem to confirm the importance of innovation networks as well as of infrastructure endowment and agglomeration economies for an early use of micro-electronics in product development.