Innovation and internationalisation of corporate R&D
The previous section outlined lack of ownership advantages as a reason for firms from emerging economies to internationalise. Strategic asset-seeking motive, entailing acquisition of technology-, or R&D-intensive firms, appears as dominant for expansion of emerging multinationals to developed countries.
A parallel trend is internationalisation of corporate R&D function when multinational companies engage in R&D at foreign locations. Motives, or location-specific factors, are divers – from characteristics of local or national markets to the properties of national or regional innovation systems. Establishing a presence in a foreign knowledge-intensive location is not a guarantee of success, and location-specific factors cannot be automatically captured (Narula and Zanfei, 2005). Tapping into localised knowledge base require strong linkages that are expensive and time-consuming to develop (Narula, 2002).
If the location-specific knowledge is internationalised by a foreign subsidiary, it is essential that it is then transferred to other units of the multinational company. Narula and Zanfei (2005:334) point out, ‘It is not sufficient for foreign affiliates to internalise spillovers if it cannot make these available to the rest of the MNE’. The multinational company must be able to co-ordinate and balance its structure, and stimulate and facilitate knowledge flows. As Narula and Zanfei (2005:334) claim, ‘a dispersion of R&D activities across the globe require extensive complex coordination if they are to provide optimal benefits. Such co-ordination requires expertise, managerial and financial resources’.
In its turn, the organisational structure is highly linked to the technological and sectorial nature of the company. Therefore, technological and sectorial differences can account for some of the differences of patterns of internationalisation and organisational structural adaptation (Narula, 2002).
A related question is the nature of technology involved, as it can explain specificities of internationalisation patterns. Technologies can be analytically split in two categories – mature or immature. In Narula’s (2002: 796-797) words, mature technologies ‘evolve slowly and demonstrate minor but consistent innovations over time. The technology is to a great extent codifiable, widely disseminated, and the property rights well-defined. Competition shifts towards price, economies of scale and downstream activities in order to add value, as the original product is priced as a commodity. On the other hand, immature technologies, widely present in emerging sectors, change rapidly and are difficult to codify.
The sectoral differences, or systematic knowledge base variations between industrial sectors is a classic argument (Pavitt, 1984). Understanding the specificities of involved knowledge bases is crucial in order to understand the prospects for, and challenges involved in, creating corporate learning networks that span different locations, and the need to link up involved knowledge actors.
Many emerging economies operate in mature technologies and low-tech sectors, and competition indeed shifts towards the price. For example, as shown by Barnard (2008), emerging multinationals tend to concentrate their M&A activities in low-tech traditional industries in which they have accumulated capabilities over time and in which they enjoy competitive advantages (compared to western multinationals) such as capital-intensive production, scale economies and assembly-based mass production.