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

31 Pages Posted: 7 Feb 2002

See all articles by Francesca Sanna Randaccio

Francesca Sanna Randaccio

Sapienza University of Rome

Reinhilde Veugelers

Catholic University of Leuven (KUL) - Department of Applied Economics; Centre for Economic Policy Research (CEPR)

Date Written: January 2002

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.

Keywords: MNEs, R&D decentralization, technological spillovers

JEL Classification: D21, F23, L16, O23

Suggested Citation

Sanna Randaccio, Francesca and Veugelers, Reinhilde, Multinational Knowledge Spillovers with Centralized Versus Decentralized R&D: A Game Theoretic Approach (January 2002). CEPR Discussion Paper No. 3151. Available at SSRN: https://ssrn.com/abstract=298842

Francesca Sanna Randaccio (Contact Author)

Sapienza University of Rome ( email )

via del Castro Laurenziano, 9
Rome, RM 00161
Italy
+39 06 4829 9228 (Phone)
+39 06 4829 9218 (Fax)

Reinhilde Veugelers

Catholic University of Leuven (KUL) - Department of Applied Economics ( email )

Leuven, B-3000
Belgium
+32 16 32 6908 (Phone)
+32 16 32 6732 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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