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How global is R&D? Firm-level determinants of home-country bias in R&D

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Abstract

Despite an increasing internationalization of R&D activities by multinational firms, a major portion of corporate R&D still tends to be concentrated in firms’ home countries. We examine the extent to which there exists a home-country bias in the location of R&D activities of 156 major R&D-intensive firms based in Europe, the United States, and Japan during 1995–2002, and develop hypotheses concerning the firm-level determinants of such home-country bias. We define this bias as a share of global R&D activities conducted in the home country that is not proportional to the general attractiveness of the country for multinational firms’ R&D activities. We find home bias to be the predominant pattern, but with substantial variation among firms. The extent of the bias increases with the degree of scale and scope economies in R&D, the coordination costs of international R&D, and the embeddedness of firms’ R&D in home countries’ innovation systems. Technology leadership is associated with greater home bias if the home country provides relatively strong intellectual property rights protection, and firms face potential knowledge dissipation abroad. Our findings imply that home-country bias is, to an important extent, a response to the economics of R&D and the centripetal forces favoring centralization of R&D.

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Notes

  1. Partial exceptions are case studies of, respectively, a small sample of Norwegian firms by Narula (2002), and major telecommunication firms by Di Minin and Bianchi (2011).

  2. We excluded firms that are the product of large international mergers, because of the bias arising from their multiple home countries. An example is AstraZeneca, which was formed in 1999 as a merger of the British firm Zeneca and the Swedish firm Astra.

  3. The patent grant rate at the EPO is, on average, 59% (Van Pottelsberghe de la Potterie, 2007). We discuss potential bias due to the use of EPO data in the final paragraph of the empirical results section.

  4. These numbers are comparable to the numbers on foreign-owned patents published by the OECD (2009), and are derived with the same methodology. There is a non-trivial variation in the benchmark value (the foreign patent shares of countries) across main technology domains. For instance, 23% of foreign patents in chemical and pharmaceutical fields are invented in the United States during 1999–2002, whereas this share is only 14% in mechanical engineering and machinery.

  5. This is the average across the two periods. We note that the numbers in Column 5 are very close, but not exactly equal, to the ratio between the numbers in Columns 3 and 4, because the numbers in Column 5 are derived as an average over individual firms’ home bias ratios. The average of a series of ratios is not exactly equal to the ratio of the averages of the nominator and denominator.

  6. A similar approach – examining size distribution patterns to arrive at estimates of scale economies – has been commonly taken in industrial organization research, where firm/plant size distribution patterns within/across industries are used to assess the minimum efficient scale of operations (e.g., Acs & Audretsch, 1993; Rogers, 1993).

  7. Using data on EPO patents and responses to the Community Innovation Survey for a sample of French firms, Duguet and MacGarvie (2005) find a positive correlation between the number of citations in firms’ patents and the intensity at which firms have sourced external knowledge, confirming the appropriateness of patent citations as an indicator of external knowledge flows.

  8. Use of the patent protection index due to Park and Wagh (2002) gives qualitatively similar results.

  9. We also estimated specifications with sector dummies included, but the sector dummies were never jointly significant.

  10. In the case of firm age, the analysis includes the logarithm of age and the square of this logarithm.

  11. Omitting R&D expenditure, or substituting it with an R&D intensity measure, does not materially change the empirical results.

  12. We note that a specification that includes the main effect of IPR protection is less evident, as the variation in IPR values is captured largely by the home-country dummies. Inclusion of the main effect of IPR protection in the regressions nevertheless produced comparable results.

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Acknowledgements

We acknowledge financial support from EU FP7 grant number SSH7-CT-2008-217436 and KU Leuven grant number DYK-B9640-G.0468.09. We are grateful to the editors, Paul Almeida and John Cantwell, to Leo Sleuwaegen, Reinhilde Veugelers, and Rajneesh Narula, to two anonymous referees, and to participants at the 2010 AIB Conference and the 2010 SMS Conference for comments on earlier drafts.

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Authors and Affiliations

  1. University of Leuven, Leuven, Belgium

    Rene Belderbos & Bart Leten

  2. UNU-MERIT, Maastricht, The Netherlands

    Rene Belderbos

  3. Maastricht University, Maastricht, The Netherlands

    Rene Belderbos

  4. Vlerick Business School, Leuven, Belgium

    Bart Leten

  5. National Institute of Science and Technology Policy (NISTEP), Tokyo, Japan

    Shinya Suzuki

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  1. Rene Belderbos
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Correspondence to Rene Belderbos.

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Accepted by Paul Almeida, Area Editor, and John Cantwell, Editor-in-Chief, 29 May 2013. This paper has been with the authors for two revisions.

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Belderbos, R., Leten, B. & Suzuki, S. How global is R&D? Firm-level determinants of home-country bias in R&D. J Int Bus Stud 44, 765–786 (2013). https://doi.org/10.1057/jibs.2013.33

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  • DOI: https://doi.org/10.1057/jibs.2013.33

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