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Monica Riviere, PhD 2ndyear
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STARTEGIC ORIENTATION
Firms strategy in deploying its
competitive advantages across
borders :
Investment choice that lead to
superior performance
STRATEGIC RENEWAL
Firms strategy in deploying worlds
knowledge :
Investment choice to prepare for
future growth opportunities
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Established corporations seeking growth today face an increasing need to
innovate.
While some corporations try to grow through externalacquisitions, many
recognize the ultimate importance of generating organicgrowth through
innovation.C
orporationsare
searching
for
new
approaches
to
innovation(NIST, 2008)1
The capability to develop new transnational products fundamentally depends
on howproficiently MNCstransferanddeploy knowledge frommultiple
countrysources (M. Subramaniam & N Venkatraman, 2001)
2
NATIONAL INSTITURE OF STANDARDS AND TECHNOLOGY US DEPARTMENT OF COMMERCE- SEEKING
INNOVATION AND STARTEGIC GROWTH >> 2008
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Research focus:Firms strategy in harnessing and internalizing new creative
capabilities present in different world hubs of scientific excellence and within
diverse sources of technology heterogeneous distributed across the world
Researchquestion:(1) what are the determining factors for MNEs to
a)opt for an R&D laboratory abroad and therefore tap into the innovative potential of scientific human talents
b)tap into the innovative potential of small nascent enterprises through international acquisition
c)relay on entrepreneurial ventures replicating venture capital at corporate level (CVC)
(2)
what is the performance associated with different choice modes.
Epistemology: Positivism
Theoriesused: Knowledge Based View and Real Option Reasoning
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Knowledge Based View Real Option Reasoning
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Uncertainty
Uncertainty in creating new avenues for future growth is measured by the distance
between the knowledge base and the knowledge invested in. The higher the
distance, the higher the uncertainty.
low high
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I. Strategicinternationalizationof R&D activitysourcing of creative inputs does not come exclusively from a central R&D laboratory, but other
over- seas R&D laboratoriesor technological affiliates can also undertake genuine knowledge
creation activity from capitalizingonthescientificheterogeneity fosteredinindividualhost
countries.. (Filippaiosa, Papanastassiouc, Pearcee, Ramaf (2009)
II. Technology/capabilityacquisitionA knowledge-asset motivated acquisition could be made toacquireatechnology in which the buyer
already has some expertise or to facilitate a firmsentryintoanewarea without having to go
through the risky and costly process of innovation on its own (AlAzzawi, 2008)
III. CorporateVenture CapitalinvestmentCVC programs in established corporations invest in and partner with entrepreneurial companies. By
doing so, established companies are able to identifyandsourcenewemergingtechnologiesfrom
entrepreneurial companies. or taking realoptions ontechnologiesand businessmodels(by
investing in a wider array of technologies or business directions than the company can pursue itself)
(NIST, 2008)
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At the countrylevel :
development climate supported by
the government
lower cost environment
growing markets
tax policies
intellectual property (IP) laws
Earlystageentrepreneurialactivity
(Global Venture Capital Survey, Deloitte
Development LLC, 2010)
A
t industry level :
- technological
opportunities (Klerorick et al.,1995)
- industry growth
opportunities
Industries with more technological
opportunities offer the good
ground for researchers and
investors to start their own
ventures (Dushnitsky et al., 2005)
rich pool of readily available
innovations
difficult for MNEs to retain key
personnel talents in their own
R&D facility
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At firmlevel:
Absorptivecapacity- R&D
expenditure relative to assets
and total R&D personnel
Technologicalproximity host
country patent citation
refers/not to prior technologicalactivity of the parent
Knowledgerelatedness
relatedness between the stock
of knowledge base and the
knowledge invested in
Control for:-International activity
-firm size
-product portfolio diversification
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Multinomial model
Investment choice = c+ 1 EA + 2 TO + 3 AC +4 TP + 5 R +
EA = entrepreneurial activity (country level)
TO = technological opportunity (industry level)
AC = absorptive capacity (firm level)
TC = technological proximity
R = knowledge relatedness
TC and R measurethe level ofUncertainty.Doesthe knowledgeinvestedin will create future
synergies, will itcreate futureavenues forgrowth?
H: MNEs investing abroad in knowledge to expand their capabilities will opt for full acquisition or
greenfield investment in form of R&D labs
H: MNEs investing abroad in knowledge to renew their capabilities will opt for CVC or partial acquisition
as the level of Uncertainty increases
H: MNEs with high level of absorptive capacity will opt for a greenfield establishment mode in industries
with low technological opportunities.
H: The propensity of acquisition increases for the industries with high technological opportunities forMNEs with high absorptive capacity.
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FromGlob
al Fo
rtune500
parent companies selected on revenue criteriaBased on continuity both in 2005 and 2010
From DBD Database: Who Owns Whom - find all the foreign affiliates
Determine the core business (CORBUS) of the parent SIC code (2 digits) and
affiliatescore business determine affiliates in R&D
FromTh
omson
One
Ban
ker database acquisitions made by parent company differentiate core business from non-core business
VentureXpert dataset- CVC investment (if any)
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Datastream Compustat financial figures (including R&D expenditures atcorporate level)
Patenting activity at corporate level and affiliates level both patent
stock and patent application
Damodarans datasite Industry growth opportunity
http://pages.stern.nyu.edu/~adamodar/
Global Innovation Index INSEAD country level compilation earlystage entrepreneurial activity
Technological opportunities= for each given sector (2-digits SIC) theaverage number ofcitation-weighted patent applications by firms in a
given year11
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Both exploratory and explanatory methods
Qualitative work to add insight on the dynamic capability
building issue Interviews 2 kept in France at IBM and Accenture
Quantitative analysis for the investment choice mode and
performance
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Heckmans procedure to control for self-selection biases
Econometric model: multinomial model for choice mode Tobins Q 2005 vs. 2010
Hedonic regression ( regress the market value of a firm on the
bundle of resources that compose the firm including measures of
knowledge & innovation)
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Technological opportunities= concept examined by Klerorick et al. (1995) toexplain cross-industry variation in R&D intensity and technological advance.Calculated following Dushnitsky et al. (2005), foreach givensector (2-digits SIC)theaveragenumber ofcitation-weighted patentapplications by firmsina givenyear
Knowledge Relatedness(following GAUTAM AHUJA1 and RIITTA KATILA - Strat.Mgmt. J., 22: 197220 (2001)
first, the list of patent numbers that appeared in both the invested in/ acquired
firms knowledge base and in the acquiring firms knowledge base is prepared.
Then, the number ofelements on this list is divided by the absolute size of
acquired knowledge base (measured as the number of cited and obtained patents
Technology proximity (following Cantwell J.A. and Noonan C. (2002) Technology sourcing byforeign-owned MNEs in Germany. An analysis using patent citations,paper presented at the 28th EIBA conference, Athens.)
themajority ofcitationsreferencethepriortechnological activities oftheparent ?
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MICHAEL MOELLER, CORNELIA STOLLA, ALEXANDER DOUJAK
http://www.doujak.eu/fileadmin/Redaktion/Downloads/Strategic_Innovation_Chapter_1.pdf
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Area of research: Global Strategy
Field of research: Knowledge Management
Aspect: Global Investment for strategic renewal
Investment choice in knowledge
creation vs. acquisition
Performance
MNESinternational
strategy
Strategicinnovation
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By scope: To expand firms existing capabilities
To renew firms existing capabilities
By the mean ofachievement
Knowledge creation
Knowledge sourcing
By the degree of equity investment
Full equity investment
Partial equity investment
By where knowledge is grounded
Technology available
Human talents available 18
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We now find ourselves in a time of economic
maturity. The development of new businesses hasbecome one of the most important tasks for
corporations seeking to maintain growth. []Now,we are focusing our efforts on business fields that are
expected to experience rapid growth in the 21st
century, such as biotechnology and afforestation,
environment and energy, high-tech fields, etc
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Firmsface the risk not having the right capability at theright time
Still far from being closed the debate on the advantages
and drawbacks of early movements, late entrants facethe risk to be outpaced by competitors entered earlier
Foreign Direct Investment (FDI) in R&D has two different motivations: doing 'adaptive' R&D
and getting access to 'state-of-the-art' knowledge. The 'adaptive' R&D modifies products,
processes and technologies according to local needs and supports foreign production
facilities. Getting access to 'state-of-the-art' knowledge means that companies invest inforeign countries with a view to benefiting from excellent, local research and
researchers (Euractiv.com from United Nations Conference on Trade and Development
2004).
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Takes into account uncertainty about future parameters that determine the value ofthe project, as well as management ability to respond to the evolution of thoseparameters
The project is modeled in terms of:
Uncertainty: the volatility in the change in value over time
Value: the starting value (spot price)- is usually proxied viamanagement's best guess ofNPV
Management ability to respond to changes in value over
time is modeled at each decision point
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Level of
uncertainty the highest, the greatest the value of
option Nature of uncertainty- exogenous vs. endogenous
Competition
Option exercise cost- ex: bargaining cost over acquisition ofa JV
Managerial flexibilities that may interact with future uncertainties
include the flexibility to expand or contract a project, the option to
delay an investment, and the option to speed up or hold up an
investment. Researchers in modern financial theory tend to agree that
option pricing theory is one of the most promising approaches to
addressing such complex investment issues (Ping & Liu, 2003)
We already have models to evaluate investment projects in emerging
technologies derived from financial methods to evaluate financial
options (NPV method)
Tong & Li, 2008
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Knowledge Based View Addresses firm performance differences
using asymmetries in knowledge and
associated competences and capabilities
(Barney, 1991; Prahalad & Hamel, 1990;
Peteraff,1993; Winter, 1995; Hederson &
Cockburn, 1994)
the costs that the RBV consider are not
those derived from opportunistic behavior
but the cost of coordination,
communication and combinations (Kogut
and Zander, 1993)- Knowledge Based
the entry mode predicted by RBV will
consider the most efficient ways to
transfer,coordinateand combineknowledge within the MNE subsidiaries
Real Option Reasoning
focuses on managing the costs associated
with uncertainty while providing access to
future opportunities (Myers, 1977)
Investment in the capability to respondprofitably to future uncertainty (Kogut,
Kulatilaka, 1995)
real [assets (the investment)] options [bear
the right but not the obligation to undertake
later business decisions]
type of options: - growth options
- switching options
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- By limiting the framework to TC explanations, the role ofglobal strategy is overlooked
- TC does not consider how firms create and compet. adv.
- - the role ofexperience, communication technologies and globalization to assist in the
problem costs associated with opportunism and assets specificity
-
- Independent of opportunism, frictions between economic actors occur because ofinevitable, irreducible differences in their knowledge (Conner & Prahalad, 1996)
- Contrary to transaction cost theory (TCT) which focuses solely on the efficient
transaction of individual products (Williamson, 1975), organizational capability and
network approaches emphasize the acquisition and development ofvalue-creating
resources and capabilities as basis ofcompetition.
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