Strategies of using social proximity and organizational proximity in product innovation

In this paper we investigate how the innovation behavior of firms to capitalize on social proximity with independent firms and organizational proximity with parent companies and foreign customers contributes to innovation in the Pearl River Delta (PRD), China. While traditional views often hold that Chinese firms rely heavily on organizational proximity with parent companies and foreign customers to gain access to knowledge, we aim for insights into whether localized learning mechanisms based on informal social relations have emerged in the region after more than thirty years of industrialization. Based on a questionnaire survey of 359 innovative electronics firms, this paper demonstrates that firms which use social proximity to foster innovation are emerging in the PRD, and that it is mainly applied by domestic firms as a ‘spying device’ to catch up with the latest technology and market preference in order to trigger new product ideas. Nevertheless, the achievements of product innovation performance made by applying social proximity in interactive learning are fairly small, which underpins the instability of the trust-based interactive learning between firms in the region. The results of the paper provide insight into the development stage of the regional innovation system in the Pearl River Delta, calling upon an effective governance infrastructure to be put in place to stabilize interactive learning on the local scale.