Clusters, technological knowledge spillovers, and performance : The moderating roles of local ownership ties and a local market orientation

Purpose – The purpose of this paper is to explore the cluster effect by decomposing the broad category of “clusters” into cluster size and technological knowledge spillovers. Further, this study questions whether all foreign firms benefit equally from participation in geographic clusters. Specifically, the paper examines the moderating roles of local ownership ties and a local market orientation with respect to the benefits of cluster size and technological knowledge spillover. Design/methodology/approach – Using the Database of Enterprises in China, this study examines a sample of 2,200 Taiwanese manufacturing firms operating in China from 2005 to 2007. Findings – The paper found that increased cluster size and technological knowledge spillovers help to enhance foreign firms’ financial performance. The analysis also shows that local ownership ties and a local market orientation have a positive moderating effect on the relationship between cluster size, technological knowledge spillovers, and performance. Originality/value – This study distinguishes between the effects of cluster size and technological knowledge spillovers, which is an important step toward demystifying the “black box” of cluster benefits. Further, due to the liability of foreignness and the lack of legitimacy that foreign firms face when operating in emerging economies, this study integrates the cluster perspective and the legitimacy perspective to discuss whether foreign firms can actively adopt strategic behaviors that will help to improve their legitimacy and enable them to better capture potential cluster benefits.