Knowledge in production is important in at least three respects. It confers value to products, it favours the creation of relations amongst economic actors, and attracts activities, thus generating dynamism on a territory. It can be the knowledge incorporated into capital goods (technology) or labour. It can be the outcome of past experiences, the fruit of intuition and research, or the result of imitation. Contextually, knowledge can be also diffused amongst actors, within a locality or outside it. With respect to local production systems, we will talk about localised knowledge, which consists in the capability to learn and internalise the tacit knowledge diffused in a particular space of production and to recombine it with the individual knowledge of each actor.
With these foundations, our paper addresses the mechanisms that favour the production, re-production and diffusion of knowledge within firms, territories and amongst local economic systems. We set out our analysis around two main ideas; the first concerned with the relationship between knowledge dynamics, firms and local economic systems, the other explaining knowledge dynamics inside firms.
This double perspective on knowledge life cycles inside local systems and firms, from our point of view, is largely related to the fact that production is essentially about knowledge, and that production decisions are mainly taken by firms. Of course, production does not take place in a vacuum. Therefore, the knowledge retained by firms may (or
may not) have an impact on the knowledge capital of localities and, vice versa local economic systems influence the extent to which local knowledge can be cumulated over time.
The answers to our questions - what are the mechanisms and factors that make knowledge capital either grow, consolidate, or decay - require the introduction of a new concept, that of knowledge life cycles, which aims at capturing declining and ascending flows of knowledge within firms and local economic systems.
The relationship between the knowledge retained by firms and local systems can be, for instance, illustrated by the image of a large firm that, at different points in time, absorbs knowledge from a territory (for example, in terms of labour) and then releases it outside when increasing, for instance, the knowledge capital of a territory in the form of spin-off firms and new competencies. In this case, the firm works as a "territorial lung": when the firm first settles down it destroys knowledge; but when interaction starts with the outside system, the firm can stimulate the establishment of new firms and competencies. Under particular conditions, oppositely to what happens when a firm
releases its knowledge, the presence of a large firm could bring to the destruction of the local capital of knowledge and, consequently, to the production potential of a territory. We support the theoretical analysis of the elements that lag behind knowledge cycles with more than 200 interviews undertaken in the Italian provinces of Reggio Emilia and Forlì - Cesena.
In parallel with territorial analysis, we develop a perspective on knowledge life cycle inside firms. Our main conclusion is that, over time, a firm's knowledge capital reaches the stage of maturity and must therefore continuously renovate its competencies. Knowledge does not always grow following a cumulative process, but it can evolve or stagnate.