The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DFigure 3-2 R&D expenditure of foreign affiliates as a percentage of total R&D expendituresby all companies.CountryPercentage of R&DCanada (1998) 34.2Spain (1999) 32.8United Kingdom (1999) 31.2Netherlands (1998) 21.8France (1998) 16.4United States (1998) 14.9Finland (1999) 14.9Japan (1998) 1.7Source: UNCTAD 2002.Examples of the relationship between industry and globalization of R&D exist in twoextremes: mature technologies and emerging technologies. When a technology is mature,codifiable, and widely disseminated, constant interaction with customers is notimportant. In this case, R&D and production may be separated, and production becomesmore globalized than research and development. In contrast, rapid change inemerging technologies often requires close interaction between R&D and production.Larger companies still tend to dominate offshore R&D investments because they havecomparably greater financial resources, and a greater capacity to absorb external localizedknowledge. Moving R&D across borders requires a company to commit extensive resourcesto the collection, coordination and dissemination of information, and the company’sabsorptive capacity is correlated to a critical mass of accumulated R&D. As aresult, some minimum threshold size of R&D activities exists in every specific location.The literature shows that multinational companies have pursued different strategies forglobal expansion of R&D activities, reflecting an adjustment to the geographical patterns ofnational innovation systems, geographical proximity, industrial clusters and global networks.[See for example Jaffe et al. (1993), Audretsch & Feldman (1996) and Cantwell &Janne (1999).] Criscuolo et al. (2005) suggest that companies internationalize their R&D forlargely the same reasons as they do other elements of the value chain.The main explanation for the close association between globalization of production andglobalization of R&D is that many of the largest companies engaged in FDI are alsokey actors in the generation and diffusion of new technologies. More than one-third ofthe top 100 multinational companies are active in the most R&D-intensive industries,such as electronics, pharmaceuticals and chemicals (Narula & Zanfei 2004). Similar toproduction activities, most offshore R&D investments are still largely limited to OECDcountries. A majority of multinational companies have kept more than 90 percent oftheir R&D expenditures within the OECD (UNCTAD 2002).91