Why do foreign subsidiaries engage in research and development activities in the host countries?

新兴经济体代写 Extant literature identifies that there is a change in pattern of global innovation which has distinguished MNC operations…

Table of Contents 新兴经济体代写

1.1. Introduction

1.2. R&D investment in host countries: Emerging economy perspective

1.3. R&D Globalisation: Outward FDI from Emerging Economy to Developed Economy

1.4. Conclusion

1.5. References


1.1. Introduction 新兴经济体代写

Extant literature identifies that there is a change in pattern of global innovation which has distinguished MNC operations (Hsu et al., 2015). 19th and 20th century innovations where characterised by strong concentration in specific regions including North America and Europe. However, there has been a shift in such R&D (research and development) practices with firms attempting to engage in R&D in emerging economies where they have established wholly owned subsidiaries. The goal of this essay is to determine why foreign subsidiaries engage in research and development activities.  This essay will identify two separate streams of research which identify the various motives  behind R&D engagement in emerging economies and in developed economies.


1.2. R&D investment in host countries: Emerging economy perspective 新兴经济体代写

Gerybadze and Merk (2014) conclude that in the 20th century, R&D was concentrated with the goal of protecting information and international expansion was considered as a way to gain physical resources and reduce manufacturing costs.  The global dominance of technology improvements in the West resulted in passive transfer of technology from the West to the developing world. This ethnocentric R&D configuration however faces challenges due to a range of reasons.

Firstly, the rise of developing economies like India, China and South Africa has created unique country specific technology needs. Consumers are unwilling to adapt products developed in another country. And want individualisation and location specific adaption of the product (Quan and Chesbrough,  2010). This has resulted in the established of R&D networks which follow an open or collaborative approach to R&D. Firms establish R&D centres in different locations with the goal of adapting the central R&D to independent needs of the location.  As Jha et al. (2015) conclude, there is need for value products which meet local market needs. 新兴经济体代写

 In the 20th century, products rejected in Western markets were exported to emerging markets.

However, there is a shift in demand and country specific R&D becomes essential for any MNC operation.  Another motive for host country specific R&D establishment is the rise in availability of talent. Countries like India are improving their overall human capital capabilities and establishment of R&D hubs in these emerging economies can contribute to increase in overall competitive advantage of a firm (Von Zedtwitz and Gassmann, 2016). This approach ensures that the firm is able to gain advantage from all its subsidiaries including host country specific R&D operations. The use of distributed R&D in this approach involves identification of independent innovation drivers which can then be integrated at the central hub, which would still be at the home country of the MNC. 新兴经济体代写

Thirdly, Foster-McGregor (2012) also conclude that establishing R&D centres and creating host country specific knowledge is essential as it can help in patenting and improving knowledge promotion and gain for the MNC. The rise of the knowledge economy makes technology, knowledge and unique process/product capabilities as key drivers of competitive advantage. Enforcement of international patents can be challenging for some industries. For example, the global pharmaceutical industry faces significant challenges in enforcing patent infringement in India. And China if the product is not developed in country.

this has created additional motives for R&D locations in host countries (Chaudhuri et al., 2015). Fourthly et al. (2009) concludes that the use of host country R&D can be an approach where there can be a host of independent R&D players across the transnational operation. The use of integrated R&D can help identify solutions to the internationalization dilemma of standardisation versus adaptation. 新兴经济体代写


1.3. R&D Globalisation: Outward FDI from Emerging Economy to Developed Economy

The other stream of literature that needs to be discussed is the emergence of outward FDI from MNCs from countries like India and China. Their motives to establish global R&D centres varies as their resource seeking needs may be different. 新兴经济体代写

For  example, Di Minin  et al. (2012) conclude that technology exploration and  gain is a key reason for establishment of R&D centres in countries like US, Germany and UK. It is argued that emerging economy firms establish R&D centres to gain access to country specific technological products and innovations which are not part of their home country network.  This can aid in vertical technology transfer from the host country to the home country and can create significant opportunities for the firm to gain competitive advantage in this location (Gammeltoft and Fasshauer, 2017).

Therefore, technology seeking and technology augmentation motives are evident. 新兴经济体代写

Castells (2014) also conclude that the rise of innovation networks in locations like Silicon Valley has further instigated the access to specific innovation networks. Firms from countries like China and India establish R&D centres in these regions to gain access to such technology. Desai (2017) concludes that Indian firms have managed to create opportunities for OFDI in Silicon Valley by taking advantage of the extensive support for R&D networks in this location.  Therefore, R&D network seeking motives are evident in this context.

Gammeltoft and Fasshauer (2017) further argue that there is resource seeking motives as well with OFDI driven R&D in countries like the US and UK being targeted to gain access to diverse human capital. Host advantage with respect to human capital which is better trained and capable of better innovation capabilities further drives the need to establish global R&D centres.  Di Minin et al. (2012) conclude that Chinese companies in Europe set up overseas R&D not only to get external technology assistance but also to cultivate a well-trained and innovation driven human capital. The gain of such human capital will also ensure that there is opportunity to transfer global knowledge and competencies to the host country which can enhance the central hub of R&D in these countries.


1.4. Conclusion 新兴经济体代写

The purpose of this essay was to present an analysis of the key reasons behind the internationalization of R&D locations. The findings show that there can be some variations in the underlying motives based on the location of the host country of the MNC. If the MNC is located in a developed region, then the motive behind a networked or collaborative R&D set-up is driven by inherent motives of new talent seeking, adapting to local needs as well as protecting assets through local patents. On the other hand, if the host country of the MNC is in an emerging economy then the goal behind R&D centre establishment is to gain access to technology, innovation networks and better trained human capital.

1.5. References 

Castells, M., 2014. Silicon Valley: Where it all began. In Technopoles of the World, Routledge, pp. 22-38.

Desai, P. N., 2017.  Export innovation system: Changing structure of India’s technology-intensive exports. Institutions and Economies, pp.21-52.

Gerybadze, A. and Merk, S., 2014. Globalisation of R&D and host-country patenting of multinational corporations in emerging countries. International Journal of Technology Management64(2-4), pp.148-179.

Hsu, C. W., Lien, Y. C. and Chen, H., 2015. R&D internationalization and innovation performance. International Business Review24(2), pp.187-195.

Li, J. and Kozhikode, R. K., 2009. Developing new innovation models: Shifts in the innovation landscapes in emerging economies and implications for global R&D management. Journal of International Management15(3), 328-339.

Quan, X. and Chesbrough, H., 2010. Hierarchical segmentation of R&D process and intellectual property protection: Evidence from multinational R&D laboratories in China. IEEE Transactions on Engineering Management57(1), pp.9-21.

Von Zedtwitz, M. and Gassmann, O., 2016. Global Corporate Rand D to and from emerging economies. University of St. Gallen, Switzerland.