CIRJE-F-259 "Towards A Field Theory of Innovating Multinational Firms in the Digital Economy: Creative Capital in a POLIS"
Author Name Khan, Haider A.
Date January 2004
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In the fast developing digital technological revolution connectedness has emerged as a major characteristic of both firms and markets. For multinational firms in high technology area in general this raises some interesting and fundamental theoretical questions. How is connectedness to be formalized? What is the role of increasing returns in the new connected structure? How should we formulate the firm's activities in multiproduct, multiple activities environment? A somewhat novel theoretical approach is suggested for modeling the activities of the multiproduct, multiple activities oriented. MNC. This paper discusses some of the most important economic issues conceptually by relying on the idea of each MNC as a node in the global economy as a connected field. The basic problem of innovation for a high technology firm in a connected field can be explored via the theory of a positive feedback loop innovation system (POLIS) in a nonlinear, path-dependent world where the connectedness within the firm and between the firms and its evolution matter crucially. By investing strategically in physical, creative intellectual and other forms of human and organizational capital as well as building new institutions of cooperation some firms are able to create micro-innovation systems of their own that can be extended to region-wide systems. Under the emerging globally competitive market environment this will be the best way to compete dynamically. However, creating competitive advantage in this way requires capabilities that many firms will need to promote. Creative capital acquisition as an important dimension of the MNC behavior is one implication of this new field theory and can be tested at the microlevel.