R&D investments of Multinational Corporations: an examination of shifts in patterns of flows across countries and potential influences.

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RESEARCH ARTICLE

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R&D investments of Multinational Corporations: an examination of shifts in patterns of flows across countries and potential influences.

Abstract:

* This paper investigated the influence of country-level factors that have led to shifts in the patterns of international R&D investments made by Multinational Corporations (MNCs), from an exclusive focus on developed countries to a broader scope that also includes developing countries.

* Differences in a country's national technological innovation capability, that comprised the country's capacity for the creation of technology, technology infrastructure and the development of human skills, were the most important factors in attracting R&D investments.

* Different strategic motivations like home-base exploiting versus home-base augmenting foreign R&D investments are attracted to countries with differing national innovation capabilities. The country's Intellectual Property Rights (IPR) score was also an important influence on R&D investments. International investor's experience with the country, as measured by prior FDI inflows, was a critical element in attracting R&D investment inflows.

Keywords: Strategic motivations for international R&D investments * Intellectual property rights * Institutions * National innovation capability

Introduction

It is an accepted fact that Multinational Corporations (MNCs) are locating greater proportions of their Research & Development (R&D) activities outside of their home countries (Gerybadze and Reger 1999; De Meyer and Mizushima 1989; UNCTAD 2005). Moreover, this off-shored R&D activity is decentralized, spatially dispersed and globally distributed (Cantwell and Janne 1999; Doh et al. 2005; Edler et al. 2002; OECD 1998). Today's international R&D investments are also characterized by rapid growth into some non-traditional host country locations, such as newly industrialized countries, emerging economies and developing countries (UNCTAD 2005).

The growing trend towards internationalization of R&D from 1990 onwards can be inferred from the following statistics. The overseas R&D expenditures of U.S. MNCs increased from 6.4% to 11.72% in 1994. Since then, investment in foreign R&D by U.S. Multinationals (MNCs) has increased three times faster than domestic R&D, and risen from $ 5.2 billion to $14.1 billion. It reached $18.4 billion in 1999 (Dalton and Serapio 1999). The foreign R&D expenditures of Japanese MNCs also increased from 1.44% in 1989 to 2.3% in 1996-1997 (Kumar 2002). Growth of foreign-owned R&D investments in the U.S. averaged 12% per year between 1987 and 1997. In 1997 foreign-owned R&D was 15% of total industrial R&D, more than three times its share in 1987 (National Science Foundation 1998). European countries have also experienced an impressive increase in foreign-owned R&D, which increased from 5.9% in 1993 to 7.0% in 1998. Similarly, spectacular gains were also seen in Canada (3.5%), Netherlands (7.5%), Finland (3.3%), and the UK (4.9%) during this time period (OECD 2000). In 2004, almost 10% of all R&D affiliates were located in developing countries, with 8% being in Asia. Also, the share of developing countries in the total R&D spending of U.S. MNCs increased from 8% to 14% between 1994 and 2002 (UNCTAD 2005).

Dunning (1988), in his influential paper on Foreign Direct Investment (FDI), lamented that location-specific factors have been neglected in past research on FDI and urged researchers to pay greater attention to their impact. Further, he specifically pointed out that the macroeconomic environment and institutional framework of the host country were the most important factors driving FDI. Various authors have suggested ...

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