Foreign Investment and International Plant Configuration: Whither the Product Cycle?

We analyze the determinants of the decision to invest abroad in particular configurations of overseas plants for 120 Japanese firms active in 36 well-defined electronic product markets. We find support for a structured internationalization decision model in which the decision to produce abroad and the choice for a specific international plant configuration are treated as nested strategic options. Drivers at the industry and firm level push firms to consider overseas investment, and locational characteristics pull firms towards particular plant configurations. The product cycle still appears as an important force pushing firms to set up Asia-focused or global plant configurations. In contrast, plant configurations focused on the US and the EU are a result of restrictive trade policies or offensive market access considerations vital to technology intensive firms facing competitive threats in foreign markets.management and organization theory ;

Foreign investment and international plant configuration: whither the product cycle?.

We analyze the determinants of the decision to invest abroad in particular configurations of overseas plants for 120 Japanese firms active in 36 well-defined electronic product markets. We find support for a structured internationalization decision model in which the decision to produce abroad and the choice for a specific international plant configuration are treated as nested strategic options. Drivers at the industry and firm level push firms to consider overseas investment, and locational characteristics pull firms towards particular plant configurations. The product cycle still appears as an important force pushing firms to set up Asia-focused or global plant configurations. In contrast, plant configurations focused on the US and the EU are a result of restrictive trade policies or offensive market access considerations vital to technology intensive firms facing competitive threats in foreign markets.Foreign investment; International; Investment; Product; Markets; Model; Options; Industry; Characteristics; Trade; Trade policy;

Productivity spillovers from foreign affiliates and domestic firm internationalization: firm-level evidence for Belgium.

We examine to what extent local firms can reap productivity gains from knowledge spillovers due to the presence of manufacturing affiliates of multinational firms, taking into account that domestic firms' internationalization through import and export activities may also lead to productivity growth. We examine spillovers occurring within sectors as well as those potentially occurring across industries due to client or supply relations of local firms with foreign-owned affiliates in downstream and upstream sectors, respectively. Fixed affects panel analysis on a sample of 4594 local Belgian firms during 2000-2007 reveal significant positive effects of horizontal and backward spillovers on the productivity levels of local firms. Evidence of productivity benefits due to forward linkages from foreign-owned affiliates supplying local firms is only be found for local firms with no export or import activities. Both importing and exporting activities are associated with higher productivity. In general, backward spillovers are weaker for exporting firms, and forward spillovers do not benefit importing firms, suggesting that local spillovers from client/supply relations with foreign multinationals and internationalization can be seen as alternative ways in which internationalization of an economy can enhance productivity performance.

Cooperative R&D and Firm Performance

We analyse the impact of R&D cooperation on firm performance differentiating between four types of R&D partners (competitors, suppliers, customers, and universities & research institutes), and considering two performance measures: labour productivity and productivity in innovative (new to the market) sales. Using data on a large sample of Dutch innovating firms in two waves of the Community Innovation Survey (1996, 1998), we examine the impact of R&D (collaboration) in 1996 on subsequent productivity growth in 1996-1998. We find that supplier and competitor cooperation have a significant impact on labour productivity growth, while competitor cooperation and collaboration with universities & research institutes positively affects growth in innovative sales per employee. Innovative sales are furthermore stimulated by incoming spillovers (not due to collaboration) from customers and universities. The results confirm a major heterogeneity in the rationales and goals of R&D cooperation, with competitor and supplier cooperation focused on incremental innovations improving the productivity performance of firms, while university cooperation and again competitor cooperation are instrumental in creating and bringing to market radical innovations generating sales or products that are novel to the market, improving the growth performance of firms.research and development ;

Persistence of, and interrelation between, horizontal and vertical technology alliances.

The authors explore to what extent there is persistence in, and interrelation between, alliance strategies with different partner types (customers, suppliers, competitors). In a panel data set of innovation-active firms in the Netherlands from 1996 to 2004, the authors find persistence in alliance strategies with all three types of partners, but customer alliance strategies are more persistent than supplier alliance strategies and competitor alliance strategies. A positive interrelation between customer and supplier alliance strategies and a high persistence of joint supplier and customer alliance strategies are consistent with the advantages of value chain integration in innovation efforts. Prior engagement in horizontal (competitor) alliances increases the propensity to engage in vertical alliance strategies, but this effect occurs only with a longer lag. Overall, the authors’ findings suggest that alliance strategies with different partner types are both heterogeneous in persistence and (temporally) interrelated. This suggests that intertemporal relationships between different types of alliances may be as important as their simultaneous relationship in alliance portfolios.

Does Excellence in Academic Research Attract Foreign R&D?.

We examine the role of host countries’ academic research strengths in global R&D location decisions by multinational firms. While we expect that a firm’s propensity to perform R&D in a host country increases with the strength of local academic research, firms are expected to be heterogeneously positioned to benefit from academic research strengths due to differences in the capacity to absorb and utilize scientific knowledge. We find support for these conjectures in an analysis of foreign R&D activities in 40 host countries and 30 technology fields by 176 leading European, US and Japanese firms during the periods 1995-1998 and 1999-2002. Controlling for a wide range of host country factors, the number of relevant ISI publications by scientists based in the host country has a substantial positive impact on the propensity to conduct foreign R&D. The effect of academic research is significantly larger for firms with a stronger science orientation in R&D - as indicated by citations to scientific literature in prior patents. For host countries with a strong relevant science base, this greater responsiveness of science oriented firms more than offsets a generally greater inclination to concentrate R&D at home. The findings appear robust across a variety of specifications.

Internal and external R&D: complements or substitutes? Evidence from a dynamic panel data model.

We examine the impact of internal and external R&D on labor productivity in a 6-year panel of 304 innovating firms. We apply a dynamic linear panel data model that allows for decreasing returns to scale in internal and external R&D with a non-linear approximation of changes in the knowledge stock. We find complementarity between internal and external R&D, with a positive impact of external R&D only evident in case of sufficient internal R&D. The findings confirm the role of internal R&D in enhancing absorptive capacity and hence the effective utilization of external knowledge. These results suggest that empirical studies examining complementarities between continuously measured practices should adopt more general non-linear specifications to allow for correct inferences.R&D; Panel data; Innovating firms; Knowledge; Empirical study; Specifications;

Strategic R&D location in European manufacturing industries.

We develop and empirically test a model of foreign R&D investments that takes into account strategic interaction in R&D location decisions by multinational firms in the context of R&D spillovers and foreign technology sourcing strategies. In a two-country, two-firm model with cross investments, the optimal share of R&D performed abroad depends on the efficiency of intra-firm international technology transfer, the degree of inter-firm R&D spillovers, the intensity of product market competition, and the importance of the general knowledge pool. The impact of these factors differs markedly between technology leading firms and technology laggards. We find support for most of the predictions of the model in an empirical analysis of patents based on innovations in foreign countries by 131 leading European manufacturing firms in 22 ISIC industries in 1996-1997. For technology leaders, the share of patents originating in other EU countries responds positively to host country product market competition and is strongly increasing in the level of intellectual property rights protection. Foreign R&D by technology laggards is discouraged by host country competition but increases with the efficiency of (reverse) technology transfer. Foreign R&D of both leaders and laggards increases with the size of the local knowledge pool and the size of production operations in the host country.Competition; Country; Decision; Decisions; Efficiency; Empirical analysis; Factors; Firms; Impact; Industries; Industry; Innovation; Innovations; Intellectual property; Intensity; Interfirm R&D; International; Investment; Investments; Knowledge; Manufacturing; Manufacturing firms; Market; Model; Multinational firms; Optimal; Patents; Prediction; Predictions; Product; R&D; Size; Sourcing; Spillovers; Strategy; Technology; Technology transfer;

Testing for complementarity and substitutability in case of multiple practices

A number of recent empirical studies of firm-level productivity (growth) have been concerned with establishing potential complementarity between multiple organizational design practices. These papers have drawn conclusions on basis of the effect of the interaction term between each possible pair of practices. In this paper we show that this approach may lead to misleading results in case more than two practices are considered. We develop a proper testing procedure for complementarity and substitutability in case there are multiple organizational practices that affect output. The testing methodology is illustrated by empirical examples of three and four innovation practices affecting productivity. The testing framework can easily be applied to test for supermodularity.industrial organization ;