The Closer, the Better? – Spatial Choice of Internal Development and Acquisition in Knowledge Sourcing

Geographic proximity facilitates acquisition pairing, but firms do not always acquire other firms in proximate regions. This study investigates firms’ spatial choices on knowledge sourcing between hiring their own inventors and acquisitions. We conduct a cost-benefit analysis on internal development through hiring and external acquisition, and theorize that the spatial choice is contingent upon the relative cost of acquisition/hiring and the resource complementarity between potential targets and acquirers. Examing the geographic distance between patent inventors and firms based on the universe of US manufacturing firms from the NETS database, we show that the distance is larger for acquired patents than internally developed patents. And this relationship is negatively moderated by legal constraints that increase the cost of hiring, the technical similarity between the acquired patent and the acquirer’s technology portfolio, and the acquirer’s prior experience in technology acquisition