Knowledge Flows between Multinational Enterprises and National Innovation Systems 2 nd EUROFRAME Conference: Trade, FDI and relocation: challenges for

Knowledge Flows between Multinational Enterprises and National Innovation Systems

2nd EUROFRAME Conference: Trade, FDI and relocation: challenges for the EU?

Bernhard Dachs (ARC-sys), Bernd Ebersberger (FhG-ISI)

© systems research & Fraunhofer ISI

Introduction

Paper asks about knowledge and information transfer from the host country to affiliates of Multinational Enterprises (MNEs)

Policy relevance: Fears in Europe and the US that MNEs may relocate innovative activities because of cost advantages

If innovation is an interactive process ... A high degree of interactions between MNE and the host

country may reduce the danger of relocation of MNE innovative activities


Theoretical approaches

There is no clear picture on this question in the literature:

international business literature tries to explain FDI and exports in a common microeconomic

framework (knowledge capital model, Markusen 2002) Affiliates mostly exploit assets created by the partent company

approaches to „local embeddedness“ of affiliates associated with the literature on local spillovers, innovative

strategies of MNEs and global alliances Affiliates actively increase the stock of knowledge of the MNE


apporaches to local embeddedness

no coherent framework but some building blocks:

Internationalisation is a source, not a result of knowledge creation (‚home base augmenting‘ vs. ‚home base exploiting‘ – Kuemmerle 1997)

A reason for this is the partly tacit, context-specific, and local nature of knowledge and spillovers (Breschi and Lissoni 2001)

foreign affiliates act in many cases as ‚surveillance outposts‘, or ‚antennas‘ to benefit from local spillovers (Florida 1997, Almeida 1999)

MNEs give themselves a more decentralized organisational form (Zanfei 2000), where local affiliates enjoy wider mandates (Birkinshaw; Hakanson)


Questions

Does foreign ownership have an impact on:

the propensity to enter into co-operation for innovation with different kinds of partners?

on which knowledge sources the firm relies for innovation?

Does the home country of the MNE determine the co-operation or sourcing behavior of the firms? ‘Cultural’ proximity and long-lasting business relations may

ease co-operation between AT, D, CH


Data

Community Innovation Survey 3 (CIS 3) for Austria A survey of innovative enterprises in all member

countries of the EU covering 2000 - 2002

Sample size: 618 (only group enterprises)

Austrian-owned firms: 390

Foreign-owned firms: 228- German-Liechtenstein-Swiss-owned (GLS) 118

- Anglo-Saxon-owned (AS) 53

- European-owned (EU) 47


Types of interaction in the data

formal co-operation with different partners, dom. and abroad a co-operation on a contractual basis may also include risk sharing, exploitation of economics of

scale involves exchange in both directions and mutual learning builds up trust and a common codebook (tacitness)

valuation of different information sources for innovation much more informal include demonstration, imitation, reversed engineering, ...


Empirical model

The impact of foreign ownership

compare the actual behavior with the counterfactual behavior

counterfactual behavior: "How would the foreign-owned firm have behaved if it was in domestic rather than foreign ownership?"

counterfactual situation not observable

counterfactual situation is estimated by means of a kernel based matching procedure

mean effects are computed


Results – impact of foreign ownership I. FO EU GLS AS

Collaboration Total (.) Domestic (-)

- Vertical (-)

- Horizontal (.)

- Science (-) International (.)

- Vertical (.)

- Horizontal (.)

- Science (.) Valuation of information

- Internal + grp. (+)

- External firms (-)

- Science (.)


Results – impact of foreign ownership II. FO EU GLS AS

Collaboration Total (.) (.) (.) (-) Domestic (-) (.) (.) (-)

- Vertical (-) (.) (.) (-)

- Horizontal (.) (.) (.) (-)

- Science (-) (.) (.) (-) International (.) (.) (.) (.)

- Vertical (.) (.) (.) (.)

- Horizontal (.) (.) (.) (.)

- Science (.) (.) (.) (.) Sourcing

- Internal (+) (+) (+) (+)

- External (-) (-) (-) (-)

- Science (.) (.) (.) (.)


Likelihood of foreign and domestic enterprises to enter into co-operative arrangements

Type of co-operations All foreign-owned Austrian

All co-operations 0.307 0.355

Domestic co-operations 0.228 0.333

International coop 0.238 0.249

Type of co-operationsEuropean (incl

GLS) AustrianEuropean (without

GLS) Austrian

All co-operations 0.364 0.361 0.400 0.321

Domestic co-operations 0.299 0.339 0.300 0.305

International coop 0.273 0.249 0.350 0.207

Type of co-operations Anglo-Saxon Austrian GLS Austrian

All co-operations 0.125 0.333 0.351 0.374

Domestic co-operations 0.000 0.306 0.298 0.350

International coop 0.125 0.247 0.246 0.264


Effects of Foreign ownership:

... leads to less domestic co-operation, ... but not to a significantly lower overall co-operation

propensity

... causes companies to draw more on group internal knowledge sources for innovation.

this points to ‘home-base exploiting’ behavior

Differences with respect to parent home country exist but they cannot be explained by neighborhood (D/LI/CH)


international business literature: Knowledge capital model (Markusen 2002)

MNEs possess firm-specific assets these assets are intangible and transferable within the

firm MNEs use these assets to enter foreign markets

because they give them advantages over incument competiors

to fully exploit these assets, they have to be adopted to local needs, consumer tastes, regulation etc.

engineering and R&D units are located at target markets of MNEs for these adjustments, but main R&D is concentrated at the home country


Results and Conclusions

Bu there is no pure ‘home-base exploiting’, since

International co-operation is unaffected by ownership Differences mostly come from Anglo-Saxon

enterprises Some pairs even show a higher propensity for the

foreign-owned enterprises


Policy implications

A lower propensity for foreign-owned firms to enter domestic co-operations may point to a weaker ‘embeddedness’ of MNE affiliates

However, important sub-groups of the population don’t show such effects; even domestic linkages are quite strong for large parts of the MNE population

Therefore, the danger of relocation of innovative activities may be overstated in current discussions because MNE affiliates strongly depend on their business environment in Austria


Thank you!


Relation to findings from other countries

Impact on collaboration with domestic actors Collaboration total vert. sci. Austria:# (.) (.) (.) Denmark: (.) (.) (.) Finland:NMN (Nordic) (+) (+) (.) Norway: (.) (.) (.) Sweden: *EU, **AS (.) (+)* (+)* **

Internal sourcing Austria: AS, GLS, EU (+) Denmark: NMN, AS (+) Finland:NMN (+) Norway: NMN, AS, EU (+) Sweden: NMN, AS, EU (+)

Nordic countries taken from Ebersberger & Lööf (2005)# for EU and GLS owned, AS owned (-)

Documents

Knowledge Flows between Multinational Enterprises and National Innovation Systems 2 nd EUROFRAME Conference: Trade, FDI and relocation: challenges for