Strategic Entrepreneurship Journal

Strat. Entrepreneurship J., 4: 271–283 (2010)

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/sej.96

KNOWLEDGE SPILLOVERS AND

STRATEGIC ENTREPRENEURSHIP
RAJSHREE AGARWAL,1* DAVID AUDRETSCH,2 and MB SARKAR3
1
University of Maryland, Robert H. Smith School of Business, Department of
Management and Organization, College Park, Maryland, U.S.A.
2
Indiana University, Institute for Development Strategies, Bloomington, Indiana,
U.S.A.
3
Temple University, Fox School of Business, Philadelphia, Pennsylvania, U.S.A.

Knowledge spillovers and strategic entrepreneurship has each been the subject of much schol-
arly attention, but have largely been considered separately rather than in conjunction with
each other. In this article, we develop implications of the link between knowledge spillovers
and strategic entrepreneurship and identify key topics, themes, and issues for future research.
In doing so, we also showcase the articles of the special issue, as they shed light on some
unanswered questions and identify additional areas for fruitful research. Copyright © 2010
Strategic Management Society.

INTRODUCTION through new knowledge is not limited to the organi-

zation making the investments alone. Accordingly,
Investment in new knowledge has long been recog- both knowledge spillovers and strategic entrepre-
nized as a key driver not only of firm-level competi- neurship have been identified as critical to the
tive advantage (Grant, 1996; Spender, 1996), but process of creative destruction and creative con-
also of regional and macroeconomic growth struction (Agarwal et al., 2007) through which firms,
(Saxenian, 1994; Romer, 1990). Such knowledge- industries, regions, and economies create and reju-
generating investments are, however, not automati- venate themselves.
cally transformed into innovative output. Rather, Knowledge spillovers, defined as the external
entrepreneurial action is required to transform benefits from the creation of knowledge that accrue
knowledge investments from possessing the poten- to parties other than the creator, occur at multiple
tial to create value into a form that enables its appro- levels of analysis, be it within or across organiza-
priation (Hitt et al., 2001; Agarwal, Audretsch, and tions and networks. The idea of spillovers has been
Sarkar, 2007). The need for entrepreneurial action, pervasive in scholarship in multiple literature
coupled with the non-rival and non-excludable domains, such as those related to real options, orga-
public good nature of knowledge (Arrow, 1962) nizational learning, technology transfer, networks,
implies that appropriation of the value created employee mobility and entrepreneurship, spatial
agglomeration, industry evolution, and endogenous
economic growth. Strategic entrepreneurship,
Keywords: strategic entrepreneurship; knowledge spillovers; however defined, clearly relates to initiatives
knowledge spill-ins grounded in the search for competitive advantage
*Correspondence to: Rajshree Agarwal, University of and leading to new entry into products, markets,
Maryland, Robert H. Smith School of Business, Department of
Management and Organization, 4512 Van Munching Hall, processes, or technological innovations by both
College Park, MD 20742, U.S.A. E-mail: [email protected] incumbents and new ventures. Thus, the confluence

Copyright © 2010 Strategic Management Society

272 R. Agarwal, D. Audretsch, and M. Sarkar

of the two represents a powerful lens through which creator by the parties that benefit economically from
to investigate questions central to both strategy and the knowledge. Knowledge investments differ from
entrepreneurship, namely the formation of new ven- other investments made by individuals or institu-
tures, the origin and development of firm capabili- tions in that the public good nature of knowledge
ties, strategic renewal efforts of incumbents, and the (both non-rivalness and non-excludability) implies
dynamics of innovation and macroeconomic growth. a greater likelihood of spillovers (Arrow, 1962).
The rich legacy notwithstanding, there exist excit- Within economics, a rich literature stream has
ing avenues for further development in the theories acknowledged the tension between value creation
and empirical frameworks surrounding knowledge and value appropriation of knowledge investments,
spillovers and strategic entrepreneurship. This starting from Arrow’s (1962) insightful recognition
special issue of the Strategic Entrepreneurship that the investment in knowledge creation may be
Journal has been designed and developed to provide less than socially optimal levels given the presence
a forum for addressing some of the issues, thus shed- of spillovers. Nonetheless, even if one were to take
ding light on the underlying mechanisms that impact the underinvestment in knowledge creation for
not only intra- and interfirm dynamics and perfor- granted, the presence of knowledge spillovers has
mance, but also the implications of the diffusion of long been recognized as an important element in
innovations through entrepreneurship for regional stimulating economic development. At the macro-
and economic growth. Given the multifaceted nature economic level, knowledge spillovers are critical to
of both knowledge spillovers and strategic entrepre- models of multicountry development (Aghion and
neurship, a particular feature of this special issue is Howitt, 1992), international trade (Keller, 1998),
that it examines the issues from different theoretical and agglomeration and deagglomeration (Krugman,
traditions, using different methodological tools to 1991) and are the central mechanism identified in
provide evidence of the interlinkages between the modern growth theories that relate endogenous
two concepts. investments in knowledge to economic growth
Our introduction to the special issue begins with (Romer, 1990; Aghion and Howitt, 1992). Indeed,
a brief discussion of both concepts and the implica- Griliches (1992) concludes after a careful review of
tions of studying them in conjunction, and then it the empirical literature on R&D expenditures that
identifies potential research questions within the the significantly higher social to private rate of
domain. We next highlight how the five articles in return to R&D investments can be largely attributed
the special issue individually and collectively help to the high levels of R&D spillovers across
address some of these research questions and con- organizations.
clude with a brief commentary on the need for con- While the beneficial effects at the macro levels are
tinued scholarly attention. Thus, it is our hope that largely uncontested, the presence of knowledge
the special issue not only contributes meaningfully spillovers poses a conundrum at the micro level,
to an already rich research stream, but also sparks where the actual decisions for investments are being
additional interest in studying knowledge spillovers made. The question relates to the distinction between
and strategic entrepreneurship. knowledge spillovers and knowledge transfer and
the nature of the flow or transmission of knowledge.
Knowledge spillover is similar to knowledge trans-
fer in that the knowledge is available for economic
CONCEPTS AND IMPLICATIONS benefit to parties other than the creating entity.
However, it is different because it relates to both
Knowledge spillovers
compensation and continued access. While knowl-
The concept of spillovers refers broadly to the pres- edge transfer involves the cross-party compensation
ence of externalities, defined as an often unforeseen of the value of the knowledge flowing between indi-
external effect accompanying a process or activity viduals or organizational units in a market-like trans-
(Webster’s Collegiate Dictionary, 1992). Knowledge action, knowledge spillovers relates to knowledge
spillovers, more specifically, refers to the external flows that are un- or undercompensated. That is, the
benefits from knowledge creation that is enjoyed by recipient of the knowledge spillover is able to access
parties other than the party investing in the creation. the knowledge without completely paying for the
Critical to the concept, particularly in the domain of value of the knowledge. Further, knowledge transfer
economic activity, is the lack of compensation to the may also (though not always) connote rivalness of
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
 Knowledge Spillovers and Strategic Entrepreneurship 273

use, while knowledge spillovers entails that the ventures (Bhide, 1994) and managers of existing
knowledge is simultaneously available to both organizations (Covin and Slevin, 2002). And col-
parties. As an example, Agarwal et al. (2010) distin- lectively, these actions can explain the birth, growth,
guish between the transfer of knowledge embodied and demise not only of organizations, but also of
in people who quit an organization to create a new industries, regions, and economies. Not surprisingly,
venture and the spillover of knowledge when the Schumpeter (1942) discussed the competitive rami-
same routines are available at both the source and fications of entrepreneurial action at the individual,
recipient organization. Particularly germane to the firm, industry, and economy levels when elaborating
issue is the following: while knowledge spillovers on the process of creative destruction.
clearly suggest a flow of knowledge resources and
capabilities from one decision-making entity to
Implications of knowledge spillovers and
another, what exactly is flowing, through which strategic entrepreneurship
transmission mechanisms and how and who benefits
the most from such transmissions is less clear. Taken together, the concepts of knowledge spill-
overs and strategic entrepreneurship provide a valu-
able analysis of the causes and consequences of
Strategic entrepreneurship entrepreneurial action toward either creation and/or
The concept of strategic entrepreneurship highlights appropriation of value through investments in
the complementarities within strategy and entrepre- knowledge. In Agarwal et al. (2007), we elaborated
neurship (Ireland, Hitt, and Sirmon, 2003). As in on the knowledge spillover view of strategic entre-
Agarwal and Helfat (2009: 281), the term ‘strategic’ preneurship. We discussed the well- documented
can be defined as ‘that which relates to the long-term fact that organizations often do not transform their
prospects of the company and has a critical influence knowledge investments into economically valuable
on its success or failure.’ Further, the term ‘entrepre- output, and that they are also imperfect repositories
neurship’ has found its most enduring definition in of knowledge due to the presence of knowledge
the Schumpetarian notion of the creation of new spillovers. Accordingly, we had drawn out some of
products, processes, markets, and organizational the important implications for entrepreneurship,
forms (Schumpeter, 1942). strategy, and growth.
In a series of papers that seek to integrate and Building off the concepts discussed in Agarwal
summarize the basic premises of strategic manage- et al. (2007), we elaborate on some additional impli-
ment and entrepreneurship (Hitt et al., 2001; Ireland cations for the need to study knowledge spillovers
et al., 2003), these scholars have highlighted the and strategic entrepreneurship in tandem. First, and
need for entrepreneurial action with a strategic per- related to the enduring question of why organiza-
spective. Whether undertaken by new ventures or tions fail to appropriate all the value they create, is
established organizations, strategic entrepreneurship the issue of differential valuation of knowledge. At
requires a dual focus on creating change, exploiting the one extreme, even if an organization chooses not
or appropriating the value through the change. For to internally exploit the knowledge it created, it can
example, Ireland et al. (2003: 966) discuss the fact engage in market transactions for knowledge trans-
that wealth is created when firms ‘combine effective fer that allow it to appropriate value. However, while
opportunity-seeking behavior (i.e., entrepreneur- this may sound like a straightforward and mechani-
ship) with effective advantage seeking behavior cal accounting application that merely involves com-
(i.e., strategic management).’ paring the value of what is being transacted with the
Importantly, strategic entrepreneurship transcends value of the compensation between the recipient and
levels of analysis and encompasses actions under- originator organization, there is significant ambigu-
taken by individuals, teams, and firms, in an intra- or ity related to the value of knowledge. Arrow (1962)
interorganizational perspective. Nor is strategic noted that the sanguine characteristic defining and
entrepreneurship the domain of new and small firms distinguishing knowledge from other economic phe-
alone, since much innovation and entrepreneurship nomena is that it is characterized more by uncer-
is undertaken by established firms seeking to strate- tainty than by risk. As Alvarez and Barney (2005)
gically renew themselves through entrepreneurial point out, in an a priori sense it is virtually impos-
activity (Agarwal and Helfat, 2009). It applies sible to calculate the expected value of knowledge
equally to the actions made by founders of new because of its inherent uncertainty. Drawing on
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
274 R. Agarwal, D. Audretsch, and M. Sarkar

Knight (1921), they show that the major distinction that the ambiguity or uncertainty in the value of the
between risk and uncertainty is that the former is knowledge results in the source organization not
associated with a distribution of probabilistic out- being fully compensated, the flow of knowledge is
comes, while neither the outcomes nor any associ- characterized by spillovers rather than transfers.
ated probabilistic distributions can be identified for A second implication, closely related to the first,
knowledge. Thus, whether a knowledge flow is is that the uncertainty or ambiguity of the value of
better characterized by a financially compensated knowledge can be addressed or resolved only after
transfer of technology, or an un- or undercompen- subsequent entrepreneurial actions have been under-
sated knowledge spillover, is difficult to identify; taken. In Agarwal et al. (2007), we developed our
this is because as a result of the inherent uncertainty, model of creative construction where knowledge
different organizations may, and most likely will, investments by firms and universities had to be
place a different valuation on the same knowledge. coupled with entrepreneurial action by employees
Some examples of firms that historically underval- and scientists who were the cocreators of the knowl-
ued knowledge generated in their research laborato- edge for the formation of new ventures. We then
ries are Bell Labs, Shockley Semiconductor, related knowledge spillovers and strategic entrepre-
Fairchild, Xerox, and IBM. Indeed, the literature on neurship to the heterogeneity in capabilities and
employee entrepreneurship rests on the concept of growth of firms, industries, regions, and economies.
underutilized knowledge that is subsequently used Here we build on that model further, and Figure 1
by the founders of spin-outs in a new venture presents our modified view of knowledge spillovers
(Agarwal et al., 2004; Moore and Davis, 2004). and strategic entrepreneurship. Specifically, we now
Whether the knowledge flowing from the parent to incorporate strategic renewal efforts by the firm
the spin-out organization is a transfer or a spillover making the knowledge investments, thus explicitly
is often difficult to ascertain, and is further compli- recognizing corporate entrepreneurship and intra-
cated by the nature of the contractual solutions that preneurship efforts by the firms that engaged in the
may have been implemented while the individual knowledge investments or by other established orga-
was an employee (Anton and Yao, 1995). For nizations that leverage these investments. Strategic
example, Franco and Filson (2006) provide a model renewal efforts may include diversifying entry into
where employees with entrepreneurial aspirations industries (Penrose, 1959; Klepper and Simons,
accept a lower wage to work at firms that have high 2000; Chen, Williams, and Agarwal, 2010), and
technological capabilities. However, to the extent may entail both discontinuous transformation and

Figure 1. Knowledge spillovers and strategic entrepreneurship

Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
 Knowledge Spillovers and Strategic Entrepreneurship 275

incremental renewal of the organization (Agarwal them to better understand the knowledge that
and Helfat, 2009). Importantly, such entrepreneurial is being generated outside their organizational
action may require additional innovation or invest- boundaries.
ments in knowledge. Whether the interaction occurs In Agarwal et al. (2007), we had raised the intrigu-
within the organizational boundaries or involves the ing possibility that instead of a zero-sum game
interface of distinct organizations through strategic implied by the traditional spillover literature, spill-
alliances or acquisitions, it may result in the creation overs may, in fact, result in a win-win situation if
of new knowledge that is combinatorial in nature. one considers multiple time periods as the knowl-
To characterize such intra- or interorganizational edge creator and recipient change roles, or when
flows as constituting a knowledge spillover reflects spillovers result in a wider ecosystem that comple-
the creation of entrepreneurial opportunities, where ments the focal firm’s offerings. Based on this core
new knowledge is actually generated. Thus, knowl- thesis, we had articulated the concept of creative
edge spillovers can be viewed as involving either the construction as an alternate worldview to the
creation of new entrepreneurial opportunities or else Schumpeterian notion of creative destruction. An
the discovery of (existing) entrepreneurial opportu- important implication of the notion of creative con-
nities that had not been recognized previously. The struction is a slightly more nuanced role of R&D.
recognition or generation of such entrepreneurial There is adequate evidence that internal R&D (or
opportunities can be viewed as being strategic if other knowledge-generating investments) enables
entrepreneurial actions are required for achieving absorptive capacity (Cohen and Levinthal, 1990).
strategic competitiveness (Kuratko and Audretsch, Typically conceptualized as technological know-
2009). how and operationalized as R&D intensity (Ahuja
Finally, this issue also highlights the role of and Katila, 2001; Cohen and Levinthal, 1990), the
knowledge spill-ins as an important complement to notion has been extended to ‘business-related knowl-
knowledge spillovers. Implicit in much of the theo- edge, including managerial techniques, marketing
retical thinking behind spillover research, which expertise, and manufacturing know-how’ (Lane,
takes the perspective of the investing organization Koka, and Pathak, 2006: 37). For example, market-
as a source of knowledge, is the assumption that based absorptive capacity exposes a firm to events
while the knowledge creator bears the cost of knowl- in the marketplace and sharpens its ability to identify
edge generation, others benefit. An extensive body and value new ideas, including those of supply-side
of work examines how knowledge spillovers benefit agents (Weigelt and Sarkar, 2009). Yang, Phelps, and
both society and recipient firms, in the process Steensma (2010) invoke the recombinant view of
hurting the knowledge-creating firm who fails to innovation where the creation of new knowledge
realize the full potential of its knowledge invest- involves either the novel recombination of existing
ments (e.g., Cohen and Levinthal, 1990; Griliches, elements of knowledge (Fleming, 2001) or the
1992). In such regimes, where leakages in technical reconfiguration of the ways in which knowledge ele-
knowledge were inevitable, Arrow (1962) concluded ments are linked (Henderson and Clark, 1990), to
that underinvestment in the knowledge-generating argue—against conventional wisdom—that knowl-
mechanism, or R&D, was likely. However, it is edge spillovers can provide some benefit to originat-
important to note that these knowledge investments ing firms by enhancing their ability to innovate.
also enable the organization to be a better recipient When a knowledge pool of the originator spills over
of knowledge generated by other firms given greater and is recombined with complementary knowledge
absorptive capacity (Cohen and Levinthal, 1990). by recipient firms, Yang et al. (2010) note that such
Costly spillovers can also create beneficial spill-ins spillovers provide viable opportunities for originat-
to an originating firm. The dynamic relationship ing firms to learn vicariously from the recombinato-
between knowledge investments as creating both rial innovations of recipient firms. Learning from
spillover and spill-in potential is perhaps underem- how recipients exploit their knowledge, the originat-
phasized in the classic view following Arrow (1962), ing firm can refine its search behavior and more
which focused only on commercialization or com- effectively innovate through recombinatorial oppor-
pensation of knowledge. The notion that firms tunities in the future. Since exploiting the knowledge
underinvest in knowledge generation given spill- of others requires the recipient firm to combine the
overs does not account for the fact that the firm may spill-in knowledge with additional knowledge from
invest in knowledge creation because it also enables their own idiosyncratic knowledge context (Sorenson,
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
276 R. Agarwal, D. Audretsch, and M. Sarkar

Rivkin, and Fleming, 2006), the role of R&D needs management and entrepreneurship. Such research is
to be reconceptualized as one that allows for this likely to inform our understanding of different
reverse flow to occur and create value. mechanisms through which knowledge spillovers
To summarize, this discussion adds three implica- occur, why certain recipients of knowledge spill-
tions to prior work that has examined knowledge overs are able to benefit more than others, and
spillovers and strategic entrepreneurship in conjunc- various boundary conditions that limit both losses
tion. One, since valuation of knowledge is fraught and gains for knowledge generating and knowledge
with uncertainties and ambiguity, there will be sys- recipient firms. This may require linkages of the
tematic differences between the concepts of knowl- literature in knowledge spillovers to theoretical
edge transfer (where the source is adequately lenses such as networks, real options, technology
compensated) and knowledge spillover (where the and innovation strategy, spatial agglomeration, orga-
source is un- or undercompensated). Two, these dif- nizational learning, and diffusion of innovations
ferences in valuation of knowledge arise from, and among others in order to explore issues fundamental
are resolved by, entrepreneurial action undertaken to strategic entrepreneurship. Doing so will provide
strategically to capitalize on hitherto unforeseen insights into mechanisms that facilitate or inhibit
opportunities generated by the knowledge. knowledge spillovers across or within organizational
Importantly, both the firms and the individuals boundaries, including (but not limited to) individual-
involved in the knowledge creation have access to level mobility, employee entrepreneurship, co-loca-
it, thus resulting in the potential for both strategic tion in geographical or technological space, interfirm
renewal and new venture formation. Finally, knowl- and intrafirm networks, and investments to facilitate
edge investments create the potential for both knowl- vicarious learning. Further, there is clearly a need
edge spillovers and spill-ins through a dynamic and for work on how strategic entrepreneurship may be
multi-period process where spillovers may result in a link between knowledge spillovers and spill-ins,
spill-ins in a recombinatorial process. so that incumbent organizations may effectively
benefit from knowledge spillovers that originate
from entrants and, in the process, enhance their own
AVENUES FOR FUTURE RESEARCH competitiveness. Research that explores the linkages
between intellectual property, organizational learn-
Taken together, there exist exciting avenues for ing, and knowledge spillovers to explain innovation
further development in the theories and empirical outcomes in inventor networks and growth dynam-
frameworks surrounding knowledge spillovers and ics in emerging technology clusters or across national
strategic entrepreneurship, with several tensions borders will also enhance our understanding of the
unresolved. For example, while the traditional view levers that connect individual- and firm-level deci-
has emphasized the leakage of knowledge (spill- sions to the more macroeconomic consequences for
overs) as disincentivizing R&D, spillovers can be a regional or economic growth.
strategic lever through which a firm engages in dis- More specifically, we believe that the following
tributed innovation, thereby also enhancing global research questions are an incomplete list of issues
competitiveness. Moreover, the spillover of knowl- that are deserving of more scholarly attention:
edge through the mobility of human capital has pro-
found implications for entrepreneurial activities, be 1. What role does the institutional knowledge
it at the level of firm, region, or nation. For example, context have on subsequent spillovers of knowl-
while employee mobility traditionally has been con- edge? What factors have an impact on knowl-
sidered a conduit through which tacit knowledge is edge spillovers and strategic entrepreneurship
transferred between firms or from firms to start-ups, within and across organizational contexts (e.g.,
recent accounts of reverse migration of scientists academic institutions and organizations occu-
from developed countries to emerging one demon- pying competing, complementary, or vertical
strate the importance of knowledge spillovers as supply chain relationships)?
critical to entrepreneurial resurgence in these 2. What are the underlying mechanisms that relate
countries. knowledge spillovers and strategic entrepre-
Accordingly, there is much scope for research neurship, and how might individual, organi-
that enhances our understanding of how know- zational, strategic, institutional (including, but
ledge externalities link to literature in strategic not limited to, level of intellectual property
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
 Knowledge Spillovers and Strategic Entrepreneurship 277

protection), or environmental factors affect spillovers? Do these differences in the outcomes

these mechanisms? For example, how might between the two types of transactions dissolve
employee entrepreneurship/mobility affect the over time? Do firm and industry characteristics
strategy and performance of both the source and matter?
recipient organizations? What factors moderate 9. How do positional characteristics in knowl-
these relationships? What win-lose or win-win edge networks interact with type of knowledge
scenarios may be created due to knowledge spillovers to affect innovation outcomes? What
spillovers across organizational boundaries, are some of the boundary conditions that either
particularly as they relate to entrepreneurial mitigate or accentuate such relationships?
activity? 10. What is the relationship between organizational
3. What factors have an impact on knowledge type and the ability to access and absorb external
spillovers and strategic entrepreneurship in aca- knowledge spillovers? Are some organizations
demic or scientific knowledge settings? What more capable of benefiting from knowledge
are the underlying mechanisms that enable spillovers?
or inhibit the transfer of basic knowledge to 11. How might spillovers of nontechnical knowl-
applied domains? edge, such as information about markets, alli-
4. What are the positive or negative consequences ance partners, funding, or potential acquirers
of knowledge spillovers and legacy effects on affect strategic entrepreneurship?
subsequent recipient organization performance?
Do knowledge spillovers always enhance com- As this list exemplifies, not only have we just begun
petitive advantage for recipient firms or could to scratch the surface on issues that are at the conflu-
they result in negative effects? What factors ence of knowledge spillovers and strategic entrepre-
potentially moderate the knowledge spillovers- neurship, but we can rely on multiple theoretical
performance relationship? lenses and empirical methodologies to address these
5. What role do knowledge spillovers play in trans- questions. Examples of how some of the issues may
lating failure at one unit of analysis or success at be addressed are included in this special issue, and
another unit of analysis? For example, to what we now turn to brief discussion of these articles.
extent does a firm-level focus on performance
consequences underestimate or overestimate the
overall performance consequences at another INTRODUCTION TO THE ARTICLES
level, say the individual, industry, or regional IN THE SPECIAL ISSUE
level?
6. Given that innovations are becoming increas- Collectively, the articles in the issue reflect diverse
ingly more complex and recombinant in nature, approaches. They examine different phenomena,
how do organizational strategies that differ on investigate at different levels of analysis, use differ-
the continuum of open versus closed systems of ent theoretical lenses, and deploy different method-
innovation affect knowledge spillovers and stra- ologies. For example, Parker (2010) uses a formal
tegic entrepreneurship? Can knowledge spill- modeling approach, while Kotha (2010) and
overs become the source of growth options, and Oldroyd, Silvestri, and Gulati (2010) use an induc-
thereby affect investments under uncertainty? tive analysis to develop new theory. Gambardella
7. What effects do knowledge spillovers through and Giarratana (2010) and Liu et al. (2010) use a
returning diasporas have on entrepreneurship quantitative analysis to test propositions and hypoth-
in emerging economies? How do ethnic ties eses developed in their articles. Within the context
contribute to transfer of tacit knowledge among of Figure 1, Oldroyd et al. (2010) and Kotha (2010)
inventor networks? How can existing firms use are concerned with strategic renewal of established
intrafirm mobility of employees to benefit new organizations through the leveraging of knowledge
cross-border initiatives? spillovers/spill-ins and entrepreneurial action. On
8. Are there differences between the effect of the other hand, the focus of Liu et al. (2010) is on
market and nonmarket channels of knowl- spin-outs formed by employee entrepreneurs to
edge transfer on strategic entrepreneurship? capitalize on both inter- and intra-regional knowl-
How does geographic proximity matter for edge spillovers. Parker (2010) examines the inter-
market-based transactions and noncompensated play between the two types of organizations, thus
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
278 R. Agarwal, D. Audretsch, and M. Sarkar

shedding light on the processes of creative destruc- interplay between knowledge generation, spillovers,
tion and construction, and Gambardella and and spill-ins but also the role of opportunity-seeking
Giarratana (2010) discuss implications for regional- entrepreneurial behavior in explaining such firm-
level dynamics between skilled and unskilled labor level outcomes. Using a narrative approach to gener-
when knowledge spillovers are primarily localized ate and elaborate theory, Kotha (2010) constructs a
due to entrepreneurial activity within the region. rich case study from raw historical data to provide
Importantly, the articles examine phenomena at evidence that knowledge spillovers spurs innova-
different units of analysis, often with implications tion, enables new firm entry, and benefits recipients
across levels. In Oldroyd et al. (2010) the focal unit more than originators. Kotha (2010) finds that stra-
of analysis is a business unit, with implications for tegic action related to appropriating the benefits
intraorganizational knowledge spill-ins across busi- from knowledge spillovers in critical technical
ness units. Kotha (2010), by contrast, focuses on the domains enabled Boeing to gain market power in the
organization as a unit of analysis, with industry industry, even though it was initially a marginal
structure and firm-level factors determining who player. In contrast, competing firms, including then-
appropriates value from knowledge spillovers. Liu market leader the Douglas Aircraft Company, were
et al. (2010) also focus on the organization as a unit unable to capitalize on these spillovers due to incum-
of analysis, but individuals who create the spin-out bent inertia, their focus on existing markets with
organizations, and intra- and inter-regional spill- influential and large customers, and hubris. Boeing’s
overs of knowledge play a very important role in strategic entrepreneurship efforts were also due to
determining organizational performance. For Parker concerns of survival in the face of financial duress
(2010) too, the unit of analysis is the firm, however in the post-war period, which led to search for more
the focus is on industry dynamics that result in either risky ventures and a general receptivity for new
incumbent or entrant advantage. Gambardella and technical and market opportunities by the manage-
Giarratana (2010) use cities as the unit of analysis, ment team. Importantly, Boeing also realized the
but draw out important implication of localization of importance of protecting its knowledge assets from
knowledge spillovers for the relative productivity leaking to competitors and internalized testing facili-
and wage premium offered to skilled individuals ties. Thus, Kotha (2010) attributes Boeing’s ascen-
relative to unskilled ones. The use of different theo- dancy to a combination of risk taking, serendipity,
retical lenses is also evident across articles, be it and deliberate strategic entrepreneurship.
organizational learning (Oldroyd et al., 2010), The article has a number of contributions. First, it
economic models of competition (Parker, 2010), establishes the emergent nature of the spillover
agglomeration economies and resource markets process and how internal and external knowledge
(Gambardella and Giarratana, 2010), social capital pools coevolve over time. Second, it identifies a
theory, resource-based view, and international busi- wider set of mechanisms associated with knowledge
ness (Liu et al., 2010), or strategic management and spillovers than has been considered in the literature
entrepreneurship (Kotha, 2010). to date (unpredictable events, catastrophic accidents,
Individually, each article provides rich insights competitive monitoring, and governmental actions),
regarding the phenomena they examine. We provide as well as different types of knowledge that spillover
a brief introduction of the articles in the order that (conceptual, experiential, operating, and market
they appear in the special issue. knowledge). The author conclusions support the
Kotha (2010) addresses the important question of arguments in Agarwal et al. (2007), that viewing
who appropriates the benefits of knowledge spill- incumbents merely as knowledge factories for new
overs across organizational boundaries and why, by entrants severely underestimates how innovations
undertaking a qualitative study of the evolution of unfold as a consequence of knowledge spillovers
the commercial jet airplane industry and the rise of and spill-ins. Arguing that the case study demon-
Boeing in commercial aviation. In particular, Kotha strates a more nuanced reality of creative construc-
addresses the role of entrepreneurial action in being tion, Kotha (2010) underscores the importance of
able to take advantage of spillovers and confronts strategic entrepreneurship exhibited through oppor-
the question concerning the role played by industry tunity-seeking behavior in firms being able to appro-
structure and firm-level factors in determining who priate the value from spillovers, and he speculates
appropriates value from knowledge spillovers. He on the competitive dynamics that are set into play as
argues that it is important to consider not only the new entrants leapfrog with radically new technology
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
 Knowledge Spillovers and Strategic Entrepreneurship 279

and incumbents emulate, thus triggering off a Red cooperative relationships because these are pre-
Queen race in which the ability to leverage knowl- sumed, often correctly, to yield no benefit to the
edge spillovers becomes critical. original investors.’ While these dire predictions were
Parker (2010) also examines the dynamics among not realized in Silicon Valley, Parker’s (2010) model
firms as they seek to capitalize on knowledge spill- certainly underscores the potential of a negative
overs due to entrepreneurial entry, though using a spiral that thwarts, rather than promotes, industry
formal modeling approach. A core issue relates to and regional growth.
the impact of spillovers on the organization that is In the same vein, the mixed implications for local-
the generator of the knowledge. Agarwal et al. ized knowledge spillovers and strategic entrepre-
(2007) suggest that creative construction occurs neurship is the subject of Gambardella and
when incumbents learn through spill-ins when recip- Giarratana’s (2010) attention. While the beneficial
ients use spillovers of their knowledge. However, effects of knowledge spillovers through agglomera-
Parker (2010) examines whether creative construc- tion economies to regions and firms have been dis-
tion is a likely outcome even in contexts where there cussed extensively in prior work (Saxenian, 1994;
is only a unidirectional flow from the incumbent Almeida and Kogut, 1999; Rosenkopf and Almeida,
source firm to the entrepreneurial entrant. The ana- 2003), the implications for localized knowledge
lytical approach of this article has the attractive spillovers on skill premiums has been relatively
feature of providing a framework that models an unexplored. Using data across 146 U.S. cities,
interdependence between an incumbent organization Gambardella and Giarratana (2010) investigate
that creates knowledge and an entrepreneurial firm whether localization of knowledge spillovers dispro-
that appropriates the value of the knowledge by portionately benefits skilled workers more than
accessing the spillover. The predator-prey model, in unskilled workers, thus increasing their wage
fact, shows that there is no unequivocal impact of premium. The authors define localization of knowl-
knowledge spillover entrepreneurship on the incum- edge spillovers as the extent to which firms in a local
bent organization. Rather, the results of the model vicinity draw upon knowledge generated by other
suggest multiple contingencies. In other words, the firms in the same location, and they empirically
outcome depends on the parameters of the model measure this construct by the share of patent cita-
which, in turn, generate multiple equilibria, some tions that are attributed to firms in the same region
of which are beneficial for the incumbent and some as the focal firm. They define the skill premium or
of which are detrimental. In addition to contributing productivity ratio as the ratio of the wages of those
to the literature by illustrating that the creative con- employed in managerial positions to those employed
struction outcome can occur even in the absence of as production workers. Theoretically, they begin by
the knowledge spill-in mechanisms, Parker (2010) noting that regions with greater knowledge spill-
also highlights the potential of destructive destruc- overs create a reduction in uncertainty regarding the
tion occurring due to incumbent entrant dynamics valuation of knowledge, since entrepreneurial exper-
and, thus, providing a cautionary note for being imentation creates increasing returns to the knowl-
overenthusiastic about creative construction- or cre- edge by increasing the number and simultaneity of
ative destruction-related entrepreneurship. innovative projects undertaken. This, in turn, has
Parker’s (2010) conclusion that knowledge spill- important ramifications for the skill distribution in
over entrepreneurship may actually have negative the region and the wage premium for skills—the
consequences for the knowledge-generating incum- greater the knowledge spillovers, Gambardella and
bent firm and, thus, may inhibit incentives to invest Giarratana (2010) argue, the greater the likelihood
in new knowledge, echoes a similar warning against that the regional demand and supply conditions
excessive entrepreneurship in Silicon Valley by favor skilled versus unskilled labor. Localization of
Ferguson (1988: 61), who notes that ‘fragmentation, spillovers ultimately decreases the complementarity
instability, and entrepreneurialism are not signs of between skilled and unskilled workers, either due to
well-being . . . A combination of personnel mobil- regional specialization in more skilled activities or
ity, ineffective property protection, risk aversion in replacement of the unskilled labor by a combination
large companies, and tax subsidies for the formation of capital intensive processes and more skilled labor.
of new companies contribute to a fragmented chron- In this context, Gambardella and Giarratana (2010)
ically entrepreneurial industry. Companies avoid highlight the role of entrepreneurship in enabling
long-term R&D, personnel training, and long-term the likelihood of greater localization of knowledge
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
280 R. Agarwal, D. Audretsch, and M. Sarkar

spillovers. Since new ventures that form to capitalize geographical space to another, they benefit their own
on local knowledge also stay local (Klepper, 2002; enterprise and create spillover benefits for other
Tucci, Berchicci, and King, 2010), there is an firms in proximity (through social interaction-related
increased demand for skilled and talented labor that knowledge spillovers). The article also theorizes
enables the creation of new business models, activi- about the conditioning role played by a technology
ties, or technologies. The authors note that the likeli- gap and how this effect would vary between situa-
hood of spin-out creation is not random—more tions where the conduit of knowledge spillovers is
skilled and higher-ability employees are more likely the returnee scientist versus someone who works in
to create new ventures (Campbell et al., forthcom- the MNE in the home country. Accordingly, they
ing), and the transfer of technological and market propose that a technology gap may act as a boundary
pioneering capabilities to spin-outs (Agarwal et al., condition which positively affects the impact of
2004) is more likely to occur through skilled employ- returnee spillovers, but negatively moderates MNE
ees than nonskilled employees. Further, greater rates work experience on non-returnee firms’ innovations.
of spin-out generation imply that source firms need Thus, the authors provide an in-depth analysis of
to replenish their skilled work force at a more dis- both the benefits of executive mobility and entrepre-
proportionate rate than their unskilled work force, neurship across countries and some boundary condi-
thus increasing the demand for skilled force, and tions to the extent of this benefit.
thereby their premium. Thus, Gambardella and While Liu et al. (2010) underscore the importance
Giarratana (2010) highlight an important conse- of individuals for inter-organization knowledge
quence of the process of creative construction— spillovers, a critical issue remains regarding how
more localized knowledge increases the productivity firms may enhance intraorganizational spill-ins, par-
of skilled employees disproportionately relative to ticularly when confronted with dynamic environ-
less-skilled employees. A key outcome of their anal- ments. Extant literature in knowledge spillovers and
ysis is the interesting speculation that to the extent strategic entrepreneurship is silent on what goes on
that open cultures, such as Silicon Valley, also inside the black box of the firm, since most of this
enhance the productivity gap, paradoxically, more literature has implicitly assumed that knowledge is
open societies could become more unequal. ubiquitously available and known within all busi-
While Gambardella and Giarratana (2010) focus ness units of the organization and that there is cost-
on the role of localized knowledge spillovers, Liu less transfer or spillover of knowledge from the
et al. (2010) examine the combined effect of inter- source unit to the recipient unit. This process is far
and intra-regional spillovers, particularly when from obvious or easy though, given knowledge
employee entrepreneurs serve as the critical conduit stickiness (Szulanski, 1996). Anecdotally, it is
of inter-regional spillovers. Liu et al. (2010) examine perhaps best exemplified by the failure of General
the international diffusion of knowledge from devel- Motors to leverage the learning within Saturn to
oped to an emerging market country, namely China, other divisions, ultimately killing this very success-
through strategic entrepreneurship by utilizing ful experiment (Hanna, 2010). The intraorganiza-
survey data collected from a sample of small and tional spill-ins challenges faced by organizations
medium enterprises in high-tech industries located and the importance of developing heuristics is the
in a Science Park in China. The authors examine, on subject of scholarly attention by Oldroyd et al.
one hand, the implications of potential knowledge (2010). Using an organizational learning lens, the
leakage from the traditional multinational enter- authors study four organizations undertaking strate-
prises (MNEs) to emerging market firms and, on the gic renewal under four different dynamic environ-
other hand, the implications of reverse migration in ments, and they show that firms have to combine
the development of entrepreneurship in emerging their experiential knowledge with entrepreneurial
economies. Integrating the knowledge-based view experimentation within the business unit that pos-
of the firm and social capital theory, the authors sesses the relevant knowledge and create mecha-
examine how mobility and social interaction of indi- nisms for intraorganizational knowledge spill-ins.
viduals with work experience in Western MNEs Thus, Oldroyd et al. (2010) examine how organiza-
helped in international knowledge diffusion. Since tions capitalize on the knowledge they create and
returnee entrepreneurs have the advantage of both what strategic entrepreneurship activities relate to
discovering and creating entrepreneurial opportuni- their ability to renew themselves. Building from the
ties through arbitraging knowledge from one need for reliability and validity so that learning may
Copyright © 2010 Strategic Management Society Strat. Entrepreneurship J., 4: 271–283 (2010)
DOI: 10.1002/sej
 Knowledge Spillovers and Strategic Entrepreneurship 281

occur through inferences, the authors highlight the CONCLUDING THOUGHTS

need for entrepreneurial experimentation for organi-
zations confronted with dynamic environments, so The twin concepts of knowledge spillovers and stra-
that they not only understand and anticipate, but also tegic entrepreneurship are intricately linked to each
shape causality. To do so, Oldroyd et al. (2010) other, and examining issues at their interface is key
highlight the need for the development of heuristics to understanding the causes and consequences of
at a local level, given less than ideal conditions of value creation, value appropriation, diffusion of
reliability and validity. Identifying challenges in knowledge, and ultimately, the growth and prosper-
generating reliability and validity, the authors ity of regions and nations. In this article, we build
develop their model for creating intraorganizational on extant work to draw out additional implications
knowledge spill-in mechanisms, which permits of studying the two in conjunction with each other.
knowledge developed in one unit to flow to other We have created an incomplete list of research ques-
organizational units. They discuss how organiza- tions that arise, which may require new theoretical
tions can enhance their performance through repur- perspectives or fresh empirical insights on issues
posing of local heuristics through the combination related to knowledge spillovers and strategic entre-
of knowledge and entrepreneurial experimentation. preneurship. Some of these research questions are
Proximate organizational units to which these heu- already subjects of close scrutiny, while much work
ristics are transferred have to additionally engage in remains to be done in others. For example, taken
reformulating the heuristics for their own context. together, the articles contained in this special issue
The authors also underscore the need for subsequent forge important new ground in developing fresh
feedback to the originating unit in a recursive, infer- insights, be it at an individual or intraorganizational
ential learning process that builds on the interaction level or at a regional or international level. We
of knowledge spillovers/spill-ins and entrepreneur- expect this special issue to be more of a promising
ial experimentation. new beginning rather than the final word in a highly
Oldroyd et al.’s (2010) insights regarding what pro- fertile area of research. In particular, there exists
cesses organizations need to develop to transmit significant potential for scholarly work that exam-
knowledge and how it is integrated and repurposed ines the underlying causal mechanisms, the pro-
across units is not only relevant to organizations cesses through which knowledge spillovers and
seeking to strategically renew themselves, but also to strategic entrepreneurship manifest themselves, and
organizations seeking to leverage interorganizational the consequences in terms of individual, firm, indus-
spill-ins. Presumably, differences in local heuristics try, and regional performance.
are going to be even higher across organizations than
within organizations. Thus, their work provides some
boundary conditions on interorganizational spill-ins,
while at the same time underscoring the need for
ACKNOWLEDGEMENTS
explicit mechanisms for the transfer of knowledge
We thank the Ewing Marion Kauffman Foundation for
and heuristics. These mechanisms may include move- their support of this research. We are also grateful to Jay
ment of people, as well as formal and informal rela- Barney, Mike Hitt, and Dan Schendel for their support
tionships across organizational boundaries. of the special issue and are indebted to the many review-
Thus, all five articles provide an in-depth exami- ers and authors who tirelessly worked under time pres-
nation of issues within their focal levels of analysis, sure to improve the quality of the submitted manuscripts.
but with implications across levels. Collectively, A special thanks to Lois Gast for her dedication, hard
they help us understand the entire process within work, and stellar assistance. All authors contributed
which new firms are created due to spillovers of equally, and their names are in alphabetical order.
knowledge investments undertaken within estab-
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DOI: 10.1002/sej