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Why Remote Work Could Lead to Less Innovation

A new study suggests that when employees from one company run into employees from another company, creative sparks fly

Wed, May 17, 2023 8:36amGrey Clock 3 min

Do chance encounters among employees of different Silicon Valley companies in coffee shops, restaurants and other public places lead to innovation? The answer is yes, say researchers who examined such “knowledge spillovers” in a study that may have implications for today’s work-from-home culture.

The researchers—Keith Chen of the University of California, Los Angeles, and David Atkin and Anton Popov of the Massachusetts Institute of Technology—tracked the locations of 425,000 phones using commercially available cellphone-location data. Though the data is anonymous and linked only to the unique ID number of each phone, the researchers surmised where the phone owners worked by looking at where the phones spent large parts of the workday, using a map of buildings occupied by Silicon Valley companies that have filed patents.

Examining instances where phone owners went outside the office and ended up near someone from another Silicon Valley company, they found 218 million episodes in which two workers from different companies were in the same place between September 2016 and November 2017.

For their study, they considered only situations in which both people were near each other for at least a half-hour, and used a probability technique to eliminate meetings that might have been arranged in advance. They also assumed that many of these people bumped into someone they already knew, such as a former colleague.

Sharing knowledge

Such chance meetings “may spark a conversation that leads to a transfer of knowledge or a collaboration,” the researchers wrote.

Next, the research team pulled up patent applications filed by the companies of the employees. Such applications list relevant patents from other companies in so-called patent citations. Patent citations are “one measure of which firms are influencing each other and how firms are sharing ideas,” says Prof. Chen, who studies behavioral economics and strategy at UCLA’s Anderson School of Management.

The researchers then worked backward in time. They looked for places where employees of a patent-filing company may have crossed paths with workers from companies cited in the patent application.

“We rewind the clock to a year before when they would have been developing this technology,” says Prof. Chen. “What school were they dropping their kids off at, what mall were they shopping at, what bar do they frequent. And you infer who was at that bar when they were there,” based on the phone-location data.

The goal, Prof. Chen says, is “to connect workers of the firm that is going to file the patent, at the establishment where we infer that patent was innovated, with what other workers they were interacting with.”

Next, the researchers calculated the overall number of such citations that appear to have been linked to unplanned encounters. The upshot: The researchers say that without these encounters, there would have been about 8% fewer cross-firm patent citations in the period covered by the phone-location data.

“There is a tremendous correlation between my workers’ meeting a lot with your workers, and my workers’ citing your workers’ patent,” says Prof. Chen.

The innovation boost from the encounters, by the team’s calculations, is about twice as large as a similar effect found by other research that looked for knowledge transfer based on whether two companies’ offices are near each other, Prof. Chen says.

Their study comes with some caveats. The researchers don’t know whether these employees actually spoke when they were in the same location, or, if they spoke, what they talked about. And they don’t know whether the workers’ jobs would have facilitated a tech discussion—they might have involved a Google HR staffer and an Apple maintenance person.

Still, the report shines a light on what some experts have long suspected: that random conversations involving people in similar industries can increase innovation.

Enrico Moretti, an economics professor at the University of California, Berkeley, says the study “significantly advances our understanding of knowledge spillovers and how they shape the geography of innovation.” Prof. Moretti, who says he has been working on the topic for 25 years, says, “I find this paper to be one of the most direct and convincing pieces of evidence on this question. It provides important insights into why Silicon Valley-style clusters of innovation exist.”

Remote work’s impact

Though the study involved cellphone data from before Covid, the researchers say it has implications for an era when many people work all or part of the time from home.

The researchers looked at people who occasionally worked from home in the study period, based on where their phones were located during daytime hours, and then at how that affected their probability of attending planned or serendipitous meetings with someone from another company who didn’t work from home, Prof. Chen says.

Looking at two hypothetical companies, the researchers extrapolated that if one-half of employees at each business work from home, their meetings of all types—serendipitous and planned—would fall 35% and patent citations between the companies would decline almost 12%.

“We think this means information exchange between firms is decreasing,” Prof. Chen says. “It is worrying. These businesses co-locate for a reason. If they can’t learn from each other, we think that is a big deal.”

“Presumably,” he adds, “an even bigger effect is the harm that it does to serendipity and flow of information and innovation within the firm.”


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China’s EV Juggernaut Is a Warning for the West

Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors

Thu, Jun 8, 2023 4 min

China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.

How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.

Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.

But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.

In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.

While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.

To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.

Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.

Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”

Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.

When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.

Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.

Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”

Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”


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