The Contribution of International R&D to Firm Profitability

41 Pages Posted: 31 May 2011

See all articles by Bettina Peters

Bettina Peters

Center for European Economic Research (ZEW)

Anja Schmiele

ZEW – Leibniz Centre for European Economic Research

Date Written: 2011

Abstract

The internationalisation of corporate R&D opens up the chances to participate in international knowledge sharing. This increasingly motivates firms to accelerate the pace and extent of their international R&D activities in order to enhance innovativeness and consequently competitiveness and profitability. Such business ventures, however, might be associated with huge organizational costs as well as risks of outgoing knowledge spillovers.

In this paper we empirically address the question whether international R&D activities boost profitability. We employ a large data set of about 1300 firms from the German Community Innovation Survey (CIS). The empirical results demonstrate that R&D location matters for profitability. Firms with both domestic and foreign R&D activities make significantly higher profits than all other firms, including those that carry out solely domestic R&D. We furthermore ascertain that the degree of R&D internationalisation affects profitability. Our findings suggest that medium decentralised firms which innovate in two or three foreign countries outperform firms with centralized or highly decentralized international R&D strategies. Notwithstanding, decentralized firms achieve a higher firm performance than firms that solely conduct R&D activities in their home country.

Keywords: R&D, Innovation, Internationalisation, Firm performance, Profit

JEL Classification: O32, F23

Suggested Citation

Peters, Bettina and Schmiele, Anja, The Contribution of International R&D to Firm Profitability (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-002, Available at SSRN: https://ssrn.com/abstract=1740464 or http://dx.doi.org/10.2139/ssrn.1740464

Bettina Peters (Contact Author)

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+496211235174 (Phone)
+496211235170 (Fax)

HOME PAGE: http://www.zew.de

Anja Schmiele

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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