ORGANIZING FOR TECHNOLOGICAL INNOVATION IN THE U.S. PHARMACEUTICAL INDUSTRY

Abstract

The organization of R&D in geographic space has been identified as an important but neglected determinant of innovative performance. This study uses data on 21 U.S.-based pharmaceutical companies to investigate the potential impact of geographic organization on innovative output. Three dimensions of geographic organization are assessed: (1) centralization versus decentralization of laboratories in the United States; (2) localized spillovers among competing labs in the U.S.; and (3) globalization of laboratory networks. The findings point to the importance of international spillovers that pharmaceutical companies have harnessed through ownership of foreign laboratories. Thus, foreign labs appear beneficial for innovation, but no evidence is found of more localized spillovers among commercial labs. The analysis shows some benefits of centralization within the U.S., suggesting that an organization with one or two domestic laboratories may be optimal.

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