Knowledge Spillovers and Reasons for the Concentration of Innovative SMEs

This paper reports the findings of a survey of innovative firms in the South East of England undertaken during 1999/2000. It is argued that in order to explain the observed concentration of innovation in a limited number of cities both in the US and in Europe it is necessary to consider both local knowledge spillovers and international knowledge transfers. Knowledge and experience are argued to be important in overcoming the uncertainties that characterise the innovation process. The survey reported here shows that two main categories of knowledge are important for SMEs. These are first mainly supply-side local knowledge spillovers from suppliers, collaborators and HEIs. Secondly, they are often demand-side national and international knowledge transfers from clients, customers and their international distributors. Cities rich in both local capacity and international connections are usually the locations for high levels of innovation among the firms based in them.