Factors Determining Offshore Location Choice for R&D Projects: A Comparative Study of Developed and Emerging Regions

Abstract

This paper examines empirically the determinants of offshore location choice between country clusters. Based on a dataset of 1722 R&D projects by MNEs located in developed and emerging countries, we examine the impact of home and host country, industry, and firm level variables on choice of location. We draw on the extended OLI paradigm to develop our hypotheses. Using the EU15 as a base group, a multinomial logit model is estimated between the regions of USA&Canada, Eastern Europe&Russia, emerging countries of Asia, and India&China. At the regional level, findings show that the R&D wage difference and knowledge infrastructure difference between home and host countries, the science and engineering talent pool size, and political risk level of host countries are important determining factors. At the firm level, experience of overseas R&D projects and prior experience of research in the host country are found to be important location determinants. A distinguishing feature of the paper is that we examine regions in relation to a base region, and then further examine the impact of a marginal change in independent variables on the likelihood of the choice of a region for new offshore R&D projects. Copyright (c) 2010 The Authors. Journal of Management Studies (c) 2010 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.

Guest Editors’ Introduction: People Management and Emerging Market Multinationals

“…Contractor (2014), in extending the argument on firm specific or competitive advantages of EMNEs, uses soft dimensions of enterprise including the mindset of top management, global perspectives, the need to catch-up by learning from alliance partners, and home country cultural traits such as emphasis on relationship. Large pools of technical talents and knowledge infrastructure that support certain types of offshore R&D have long been used as a resource by DMNEs in home countries of EMNEs (Demirbag and Glaister, 2010). It is also argued that EMNEs' competitive advantage lies in their capabilities in terms of process innovations which allows them to compete in more developed markets (Williamson and Zeng, 2009;Contractor 2014) and their experiences and ability to understand emerging market customers and familiarity with less developed country institutional environment which enable them to be more agile and entrepreneurial (Madhok and Keyhani, 2012;Lessard and Lucea, 2009;Hennart, 2012;Ramamurti, 2012;Contractor 2014;Cuervo-Cazurra, Meyer, & Ramamurti, 2014).…”

Are the BRIC countries overtaking intermediate countries in the race for international R&D? The case of Spain

“…Hence, aspects such as market size, dynamism and competition (de Woskin 2008) are fundamental factors for attracting R&D. Moreover, since MNCs locate their R&D activities near production subsidiaries in order to adapt to local markets, the availability of logistics infrastructures and qualified suppliers also plays an indirect but complementary role (Demirbag and Glaister 2010). For Sachwald (2008), the increasingly frequent location of development activities (and, to a lesser extent, research activities) in emerging economies is due to the geographical distribution of the centres of production, which in these countries has intensified due to the increasing attractiveness of their markets after rapid economic growth.…”

“…In this respect, political and economic risks represent a highly important dimension of the institutional environment because MNCs have to deal with a new political system and adapt to the new regulations in the host country (Demirbag and Glaister 2010). The weakness of government institutions -reflected by discretionary regulatory powers, corruption, high levels of bureaucracy and a judicial system that fails to provide effective protection of intellectual property, along with legislation and attitudes that are not sufficiently open to FDI -not only harm a country's image abroad (see The Global Competitiveness Report by the World Economic Forum, 2015), but may act as a barrier to FDI if they differ notably from the MNC's country of origin (Castellani et al 2013).…”

“…Therefore, the location of R&D centres abroad depends on the ease of access to top-level qualified personnel, which in turn depends on the quality of the educational infrastructures (Demirbag and Glaister 2010) and the command of foreign languages (Dachs et al 2012). Labour costs (Demirbag and Glaister 2010) and staff mobility (Siedschlag et al 2009) are among the other factors considered. In the case of R&D, other studies also endorse the idea that MNCs tend to prioritize the availability of scientific manpower over cost reduction (Thursby and Thursby 2006).…”

“…In the case of R&D, other studies also endorse the idea that MNCs tend to prioritize the availability of scientific manpower over cost reduction (Thursby and Thursby 2006). Likewise, MNCs are attributing a growing importance to the dynamism of the R&D infrastructures, such as the existence of cutting-edge scientific centres and institutions, access to clusters and spillover effects, and the proximity between the business and scientific worlds (Demirbag and Glaister 2010;Guimón 2009). R&D infrastructures comprise a set of factors and agents which favour the generation, exploitation, and diffusion of knowledge (Evangelista et al 2015).…”