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Multinational Knowledge Spillovers with Centralized versus Decentralized R&D: A Game Theoretic Approach

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  • Sanna-Randaccio, Francesca
  • Veugelers, Reinhilde

Abstract

This Paper provides a theoretical model on the trade-offs an MNE face when assigning subsidiaries an active role in innovation and organizing its R&D decentralized versus centralized. R&D decentralization 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. But the MNE has to organize the transfer of local know-how internally so as to be able to benefit from this location specific know-how throughout the organization. At the same time, decentralization of R&D to the subsidiary level intensifies the challenge of effectively appropriating core technology know-how, preventing the spilling over of valuable know-how to competitors, located in the foreign markets. While R&D decentralization has repercussions on both intra-company technology transfers as well as inter-company technology spillovers, it emerges as a possible equilibrium outcome from the resulting strategic interaction between the foreign subsidiary and local competition. The proposed model treats both internal and external spillovers in a game-theoretic context explicitly recognizing that absorptive capacity is required to be able to use external spillovers. The analysis suggests that a strong local know-how base is not a univocally positive factor for locating R&D abroad and indicates the critical complementary role of managing internal and external spillovers to capitalize on the benefits from R&D decentralization. It also shows that the intensity of product market competition in the host country is important, especially in determining the outgoing spillover costs.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3151.

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Date of creation: Jan 2002
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Handle: RePEc:cpr:ceprdp:3151

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Keywords: mnes; r&d decentralization; technological spillovers;

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References

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  1. Pierre Mohnen, 1992. "International R&D Spillovers," Cahiers de recherche du Département des sciences économiques, UQAM 9208, Université du Québec à Montréal, Département des sciences économiques.
  2. Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January.
  3. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-77, July.
  4. Pari Patel & Keith Pavitt, 1991. "Large Firms in the Production of the World’s Technology: An Important Case of “Non-Globalisation”," Journal of International Business Studies, Palgrave Macmillan, vol. 22(1), pages 1-21, March.
  5. Adam B. Jaffe & Manuel Trajtenberg & Rebecca Henderson, 1992. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," NBER Working Papers 3993, National Bureau of Economic Research, Inc.
  6. Cantwell, John, 1995. "The Globalisation of Technology: What Remains of the Product Cycle Model?," Cambridge Journal of Economics, Oxford University Press, vol. 19(1), pages 155-74, February.
  7. Gersbach, Hans & Schmutzler, Armin, 1999. "External spillovers, internal spillovers and the geography of production and innovation," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 679-696, November.
  8. Mansfield, Edwin & Romeo, Anthony, 1980. "Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 737-50, December.
  9. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan, vol. 19(1), pages 1-31, March.
  10. Kamien, Morton I. & Zang, Israel, 2000. "Meet me halfway: research joint ventures and absorptive capacity," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 995-1012, October.
  11. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
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Cited by:
  1. Belderbos, Rene & Lykogianni, Elissavet & Veugelers, Reinhilde, 2005. "Strategic R&D Location by Multinational Firms: Spillovers, Technology Sourcing and Competition," CEPR Discussion Papers 5060, C.E.P.R. Discussion Papers.
  2. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2005. "Centralized vs. De-centralized Multinationals and Taxes," Working Papers 10-2005, Copenhagen Business School, Department of Economics.
  3. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2006. "Taxes and Decision Rights in Multinationals," Working Papers 07-2006, Copenhagen Business School, Department of Economics.
  4. René Belderbos, 2006. "R&D Activities in East Asia by Japanese, European, and US Multinationals," Microeconomics Working Papers 21887, East Asian Bureau of Economic Research.

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