Product innovation and the spatial dynamics of market intelligence: Does proximity to markets matter?

The expanding literature on the contribution of producer services to production and new product development makes it clear that information about markets, or market intelligence (MI), is a critical input to product innovation. At the same time, research on user-producer interaction suggests that as distance between producers and users increases, the amount of information exchanged tends to decline because opportunities for face-to-face contact diminish. The implication is that firms in peripheral locations and countries with small domestic markets may have difficulty generating sufficient MI to develop successful products. Yet, other studies suggest that it may be possible for producers with small or weak home markets to import information inputs quite effectively from larger or more sophisticated markets. My objectives in this paper are twofold. First, I outline the nature of MI and its value to producers based on the existing literature and empirical research in the Canadian software product sector. Second, I investigate the spatial dimensions of the MI process. The geographic source of the various components of MI is determined, and the implications of distance between producers and markets for the acquisition of information such as MI are addressed. The findings of this exploratory study are not definitive, however, this analysis suggests that while MI is a crucial input to product innovation, proximity between producers and markets plays a limited role in effective product innovation.