The Internationalization of Corporate R&D

THE INTERNATIONALIZATION OF CORPORATE R&DVernon (1966) suggests that the main reason companies invest in foreign R&D activitiesis to exploit technological activities created within their home countries. Morerecent analysis (see Dunning & Narula 1995, among others) suggests that two otherfactors have become increasingly important: the need to monitor new technologicaldevelopments, and the ability to generate entirely new technologies and products inforeign locations. Both of these have been attributed to increasing technological complexityand the resulting rise in R&D cost.According to modern FDI literature, the internationalization of R&D by multinationalcompanies stems from two different sets of motives. First, companies will invest inR&D affiliates abroad in order to exploit the affiliate’s knowledge in the companies’home country, a process known variously in the literature as asset-exploiting R&D(Dunning & Narula 1995) or home-base exploiting activity (Kuemmerle 1996). Second,companies will augment their existing assets by acquiring technological spilloversfrom agglomeration effects in specific sectors, specific companies, public infrastructureor others in the host countries [see for example Criscuolo et al. (2005), Kuemmerle(1999), Cantwell & Janne (1999), Patel & Vega (1999)]. This practice is known variouslyas asset-seeking (Dunning & Narula 1995) or home-base augmenting(Kuemmerle 1996) R&D investment.Many companies begin globalizing R&D by moving or acquiring R&D operations thatare related to manufacturing or service production for the foreign local markets close tothe customers. However, how do findings on the increasing globalization of R&D squarewith the consensus in the modern literature that an R&D facility’s capacity to exploit andaugment its technological competences is a function of the efficiency with which it canuse complementary resources, in terms of formal and informal linkages, plus complexinterdependencies between various factors in small local geographical areas?The literature on proximity identifies two reasons for a company to locate R&D activitiesoutside the home country: to access specialized knowledge, or to access new customers.First, in line with Dunning & Narula (1995), a company may locate R&D activitynear places with specialized expertise, such as the ICT cluster in Kista outsideStockholm, which can encourage innovation that will benefit the entire company. Thiscorresponds to a strategy where knowledge from several different and attractive R&Denvironments is combined into an asset for the entire organization.Second, a company that relies on its home-base knowledge assets – the technologyembedded in its internal network – may still need to adjust the attributes of its products(including services) to preferences in foreign markets, which will require R&D in thosemarkets. While the term “offshore R&D” evokes a picture of a company establishingan independent R&D unit abroad, many companies choose to collaborate in a strategicpartnership with existing foreign partners. In fact, since the 1970s, most international93