Do Subsidiaries of Foreign MNEs Invest More in R&D than Domestic Firms?

44 Pages Posted: 1 Jun 2008

See all articles by C. Annique Un

C. Annique Un

Northeastern University - International Business & Strategy

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy

Abstract

Despite the growing involvement of multinational enterprises (MNEs) in foreign-based research and development (R&D), there has been little research comparing subsidiaries of foreign MNEs to domestic firms. Subsidiaries of foreign MNEs enjoy advantages that help them compete against domestic firms. However, when deciding on R&D investments, these advantages exert competing influences on their R&D investment decision. On the one hand, better access to and transfer of knowledge and technologies from the MNE and other subsidiaries and centers of excellence may encourage the subsidiary of a foreign MNE to invest less in R&D relative to a domestic firm. On the other hand, better access to sources of capital through the MNE and other subsidiaries may induce the subsidiary to invest more in R&D in comparison to domestic firms. We find that subsidiaries of foreign MNEs invest less in total R&D than domestic firms. The reason is that they invest less in external R&D though similarly in internal R&D investments in comparison to domestic firms. These findings support the notion that the transfer of technology and knowledge from other parts of the MNE acts as a substitute for the purchase of external R&D, but that a subsidiary of a foreign MNE must nevertheless invest internally in R&D to complement the technology transferred from other parts of the MNE.

Keywords: R&D investment, subsidiaries of foreign firms, domestic firms, multinational firms

JEL Classification: F23, O32

Suggested Citation

Un, C. Annique and Cuervo-Cazurra, Alvaro, Do Subsidiaries of Foreign MNEs Invest More in R&D than Domestic Firms?. Research Policy, 2008. Available at SSRN: https://ssrn.com/abstract=1139176

C. Annique Un (Contact Author)

Northeastern University - International Business & Strategy ( email )

Boston, MA 02115
United States

HOME PAGE: http://anniqueun.com/

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy ( email )

D'Amore-McKim School of Business
313 Hayden Hall, 360 Huntington Avenue
Boston, MA 02115
United States
16173736568 (Phone)
16173738628 (Fax)

HOME PAGE: http://cuervo-cazurra.com

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