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Does Distance Still Matter? Geographic Proximity in New Product Development

Shankar Ganesan, Alan J. Malter, and Aric Rindfleisch, 2003 [03-125]

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Many firms rely on outside organizations for the critical knowledge they need to develop and market new products successfully. In this report, Ganesan, Malter, and Rindfleisch probe the role geographical proximity plays. Is it to a firm’s advantage to be located near to, or in a cluster with, other firms in the same industry? Does proximity facilitate the sharing of information that can help boost new product development and marketing?

Their research has its roots in the work of cluster theorists who suggest that geographical proximity encourages face-to-face communication and strong relational ties, both of which in turn facilitate the acquisition of knowledge and the development and marketing of new products. But the rise of distance-spanning technology such as e-mail and video conferencing poses a serious challenge to this theory, and many researchers and practitioners now believe that distance no longer matters.

Ganesan, Malter, and Rindfleisch set out to bring some concrete, empirical evidence to bear on this debate. To this end, they studied new product development in 155 firms in the U.S. optics industry. They found that firms located near to each other do indeed engage in increased face-to-face communication. But, contrary to the assumptions of the cluster theorists, this communication does not affect the quantity or quality of the information these firms share and it does not boost new product development. Instead, the researchers found that, because of its increased efficiency, e-mail communication enhances new product creativity and development speed.

Perhaps most significantly for managers, they found that the most important factor in the sharing of knowledge and the boosting of new product development success is the formation of strong relationships between companies. More than anything else, their study recommends that managers develop and nurture relationships with key knowledge providers. In today’s market, with all of our highly efficient distance-spanning technology, it’s the relationship between people, not the distance between headquarters, that truly matters.

Shankar Ganesan is Associate Professor and Payne Fellow of Marketing and Alan J. Malter is Assistant Professor of Marketing, both at the Eller College of Management, University of Arizona. Aric Rindfleisch is Assistant Professor of Marketing, School of Business, University of Wisconsin-Madison.

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MSI Reports 2003

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