Scientific research, firm heterogeneity, and foreign R&D locations of multinational firms

• Author: René Belderbos,Bart Leten,Shinya Suzuki
• Published date: 01 September 2017
• Date: 01 September 2017
• DOI: http://doi.org/10.1111/jems.12205

Received: 25 February 2014 Revised: 18 November2016 Accepted: 15 December 2016

DOI: 10.1111/jems.12205

ORIGINAL ARTICLE

Scientific research, firm heterogeneity, and foreign R&D locations

of multinational firms

René Belderbos1,2 Bart Leten3,4 Shinya Suzuki5

1Faculty of Economics and Busi-

ness, KU Leuven, Leuven,Belgium

(Email: Rene.Belderbos@econ.kuleuven.be)

2Universityof Maastricht and UNU-MERIT,

Maastricht, The Netherlands

3Faculty of Economics and Busi-

ness, KU Leuven, Leuven,Belgium

(Email: Bart.Leten@econ.kuleuven.be)

4Faculty of Economics, Universityof Hasselt,

Hasselt, Belgium

5Musashi University,Tokyo, Japan

(Email: s.suzuki1@cc.musashi.ac.jp)

Abstract

We examine the influence of host countries’ scientific research strengths on global

R&D location choices by multinational firms. In an analysis of 277 new R&D activ-

ities identified for 175 firms in 40 host countries and 30 technology fields, we find

that the strength of relevant university research positively affects the likelihood that

host countries attract foreign R&D. When allowing for firm heterogeneity, university

scientific research appears only a significant factor for firms with a strong science ori-

entation in their R&D activities. Host countries’ corporate scientific research has no

systematic influence on R&D location choices. Empirical results are replicated in an

analysis at the regional level coveringregions in Europe, the United States, and Japan.

1INTRODUCTION

An expanding literature on the importance of science for industrial research has suggested that proximity to, and involvement in,

academic research, as well as formal collaborative research with academia increases the innovative performance of firms (e.g.,

Cassiman, Veugelers, & Zuniga, 2008; Cockburn & Henderson, 1998; Cohen, Nelson, & Walsh, 2002; Fleming & Sorenson,

2004; Furman Kyle, Cockburn, & Henderson, 2010; Gambardella, 1992; Jaffe, 1989; Jaffe et al., 1993; Mansfield, 1995; Zucker,

Darby, & Armstrong, 2002). Empirical studies have, furthermore, shown that academic research stimulates the growth of local

industrial R&D and the setup of new research intensive ventures in the region (e.g., Abramovsky, Harrison, & Simpson, 2007;

Anselin, Varga, & Acs, 1997; Bania, Calkins, & Dalenberg, 1992; Bonaccorsi, Colombo, Guerini, & Rossi-Lamastra, 2013;

Furman & MacGarvie, 2007; Jaffe, 1989; Zucker, Darby,& Brewer, 1998). However, surprisingly little attention has been given

in the literature to the role of academic research in the global R&D location choices by multinational firms.1It is important

to examine this role, as foreign R&D represents an increasing share of the R&D activities of multinational firms and of total

business R&D expenditures in many countries (e.g., OECD, 2007; UNCTAD, 2005).

In this paper, we seek to understand to what extent scientific research strengths of (potential)host countr ies affect the probabil-

ity that multinational firms locate R&D activities in these host countries. We argue that firms are heterogeneous with respect to

their responsiveness to host country scientific research. Firms possess different capacities to recognize, absorb, and utilize scien-

tific knowledge (Cohen & Levinthal,1990; Fabrizio, 2009; Gambardella, 1992; Rosenberg, 1990), which is likely tobe reflected

in the science orientation of their R&D and technology development activities (Furman, 2003; Liebeskind, Oliver, Zucker, &

Wethank Bar t Thijsand Wolfgang Glanzel for assistance in the analysis of ISI publication data at the Centre for R&D Monitoring (ECOOM) of the KU Leuven,

and Shanqing Du for research assistance. We acknowledge financial support from EU FP7 grant number SSH7-CT-2008-217436. We are grateful to Daniel

Spulber; two anonymous reviewers;Lee Fleming; Jan van Hove; Reinhilde Veugelers; Bart VanLooy; Leo Sleuwaegen; and participants at the EU Conference

on Corporate R&D (Seville, October 2007), the ESF/COST workshop in Leuven (October 2007), the Global Innovation Management workshop (Duisburg,

February 2008), the 2008 AIB Conference (Milan, June 2008), the 2008 SMS Conference (Köln, October 2008), the INIR Workshop on the Global Laboratory

(Leuven, November 2008), the CEPR SCIFI-GLOW Workshop (Madrid, July 2009), and workshops at Hitotsubashi University (July 2009), RIETI (August

2009), and Copenhagen Business School (2011) for comments on earlier drafts.

J Econ Manage Strat. 2017;26:691–711. © 2017 WileyPeriodicals, Inc. 691wileyonlinelibrary.com/journal/jems

692 JOURNAL OF ECONOMICS & MANAGEMENTSTRATEGY

Brewer, 1996). Firms with a more outspoken science orientation in R&D activities will attach greater value to the presence of

local academic research and may weigh this factorstronger in foreign R&D location choices. We examine the science orientation

of firms’ R&D activities as a key moderator variable by looking at the intensity with which scientific publications are cited in

firms’ prior patent applications. By examining firm-level heterogeneity in the valuation of location-specific characteristics, we

extend earlier work on firm heterogeneity in location choices emphasizing other firm traits, with technology leadership the main

focus of attention (Alcacer & Chung, 2007; Nachum, Zaheer, & Gross, 2008; Shaver & Flyer, 2000). We contrast science ori-

entation with technology leadership as alternative dimensions of firm heterogeneity to examine their relative explanatory power

as a moderator of firms’ responsiveness to academic research in R&D location choices. In addition to investor heterogeneity,

we examine heterogeneity in the actors behind the generation of host countries’ scientific research, distinguishing academic

research by university authors and research conducted by firm scientists (corporate scientific research).

We examine foreign R&D location choices at the microlevel, using patent-derived information on new or expanded R&D

activities at the technology field level (30 fields) for 175 R&D intensive European, U.S., and Japanese firms in the chemicals,

pharmaceuticals, engineering, IT hardware, and electronics industries in 40 host countries for the periods 1995–1998 and 1999–

2002. Inferring R&D locations from inventor information on (European Patent Office [EPO]) patent documents, we identified

277 cases in which firms recorded substantive R&D activities in particular technology fields in one of the host countries for

the first time. We construct indicators of the scientific output of universities and firms using annual ISI publication data. We

count publications at the level of countries, publishing organizations, and science fields, and take into account the relevant

publications for each technology field using a concordance matrix linking technologies to the set of science fields on which

they draw most. Weestimate conditional logit models with countr y fixedeffects and exploit variation in host countries’ relevant

scientific research strength across countries, technologies, and time to identify the impact of scientific research on R&D location

choices of firms. The analysis controls for the main alternative key driver of R&D location decisions: the attraction of clusters

of industrial R&D activities in the host country. We measure industrial R&D at the country and technology level as the number

of patents applied for in the field by host country inventors. We control for prior operations of the firms in the host countries

and a broad set of other host country characteristics that in prior research have been found to attract or discourage foreignR&D

activities. This setup allows us to determine the significance and magnitude of the impact of scientific research on multinational

firms’ R&D location choices with greater precision.

We find that university research strength in a host country positively affects the probability that the country is chosen as the

location for new R&D activities, while corporate scientific research does not affect multinational firms’ R&D location choices.

Allowing for firm heterogeneity reveals that university research strength is a significant factor for firms with a strong science

orientation in their prior R&D activities, while university research plays no significant role for firms with a more limited science

orientation. Firms’ technology leadership, in contrast, is not an independent differentiator for the responsiveness to university

research strength. Rather, among firms with a strong science orientation, technology laggards are most attracted to university

research strengths. The core results are robust to changing the level of analysis from the country level to the regional level.

2DRIVERS OF FOREIGN R&D

Two streams of literature inform about the role of academic research in firms’ foreignR&D location choices: the R&D inter na-

tionalization literature and the literature on university–industry linkages.

2.1 International R&D

Studies on international R&D by multinational enterprises (MNEs) have identified two major motivations to set up foreign

R&D activities (e.g., Criscuolo, Narula, & Verspagen, 2005; Driffield, Love, & Menghinello, 2010; Florida, 1997; Hakanson &

Nobel, 1993; Kuemmerle, 1997; Phene & Almeida, 2008; Song, Asakawa, & Chu, 2011). Traditionally, MNEs have conducted

R&D activities outside their home countries to support manufacturing activities of local subsidiaries or to adapt products and

technologies developed in their home countries to local market conditions (“home base exploiting” or “adaptive” R&D). A

second major motivation forinter national R&D is to developnew technologies overseas by accessing foreign R&D resources and

local technological and scientific strengths (“home base augmenting” or “innovative” R&D). Empirical studies have suggested

that home base augmenting R&D is gaining importance (e.g., Ambos, 2005; Ambos & Ambos, 2011; Florida, 1997; Kuemmerle,

1997; OECD, 2007; Todo & Shimizutani, 2008; Von Zedtwitz & Gassmann, 2002). The rise in home base augmenting R&D

has drawn renewed attention to the question to what extent home country operations can benefit from overseas R&D through

“reverse” technology transfer and the development and sharing of complementary technologies. Although some studies have