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Keywords:

  • breakthrough innovations;
  • technological space;
  • geographic origin;
  • biotechnology;
  • patents

Abstract

How are breakthrough innovations created? Our study suggests that the type of external knowledge sourced determines the likelihood of creation of breakthrough innovation. We characterize the external knowledge utilized on two dimensions: its technological space and geographic origin. We draw on the concepts of local search and national innovation systems to identify critical knowledge inputs. We hypothesize that external knowledge characterized by technological distance or proximity and the national or international context can have a differential impact on breakthrough innovation. This is due to the contradictory implications of its value created by distance and to absorptive capacity limitations in effectively utilizing knowledge from a different context. To test our hypotheses we use patent data from the U.S. biotechnology industry. Our findings suggest that 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. Copyright © 2006 John Wiley & Sons, Ltd.