Multinational knowledge spillovers with decentralised R&D: a game-theoretic approach
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Multinational knowledge spillovers with decentralised R&D: a game-theoretic approach Francesca Sanna-Randaccio1 and Reinhilde Veugelers2 1
University of Rome ‘La Sapienza’, Rome, Italy; Katholieke Universiteit Leuven, Leuven, Belgium
2
Correspondence: Reinhilde Veugelers, EC-BEPA, KULeuven and CEPR-Fellow, Naamsestraat 69, Leuven 3000, Belgium. Tel: þ 32 16 32 69 08; Fax: þ 32 16 32 67 32; E-mail: [email protected]
Abstract This paper provides a theoretical model of the trade-offs that an MNE faces when organising its R&D as decentralised or centralised. R&D decentralisation avoids having to adapt centrally developed innovations to local markets, being able to use the specific know-how of the subsidiary. In addition R&D subsidiaries can be used to source locally available external know-how. At the same time, however, R&D internationalisation intensifies the spillover of valuable know-how to competitors located in the foreign markets. The analysis demonstrates the importance of the intensity of competition in the local market in determining the size of both the benefits and costs of R&D decentralisation. It shows that when R&D is undertaken abroad in association with production, the local knowledge base is not unequivocally a pulling factor attracting R&D investments by foreign MNEs, depending on the level of local competition. The paper also shows that efficiency in reverse intra-company technology transfers is a critical factor in benefiting from technology sourcing. The results thus illustrate the complementarity of efficient internal and external knowledge management systems. In addition the model suggests that, with a fall in the cost of intra-company technology transfers, relative market size loses importance as a locational factor for R&D decentralisation. Journal of International Business Studies (2007) 38, 47–63. doi:10.1057/palgrave.jibs.8400249 Keywords: MNEs; R&D decentralisation; technological spillovers
Received: 22 August 2003 Revised: 8 June 2006 Accepted: 5 August 2006 Online publication date: 18 January 2007
Introduction In the traditional literature on multinationals, following the seminal work of Dunning (1988), multinational activities originate from the R&D activities of the firm. But the more recent literature, rather than seeing the geographic dispersion of MNEs as a result of knowledge creation, has shifted the emphasis towards seeing the geographic dispersion of MNEs as a source for knowledge creation (e.g., Cantwell, 1995; Kuemmerle, 1997; Niosi, 1999; Narula and Zanfei, 2004). A major challenge for the MNE is to find an organisational system that is capable of sourcing local know-how, and transferring this know-how across units and locations. In this perspective, the subsidiary is being viewed as a basis for new generations of innovative products, which can be used throughout the multinational organisation. Traditionally, the management literature has explained the decision o
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