Course Assignment Article and a Company Case Study - Article: the Drivers of Foreign Direct Investment Into Research and Development: an Empirical Investigation
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COURSE ASSIGNMENT ARTICLE AND A COMPANY CASE STUDY - ARTICLE: THE DRIVERS OF FOREIGN DIRECT INVESTMENT INTO RESEARCH AND DEVELOPMENT: AN EMPIRICAL INVESTIGATION CASE COMPANY: NOKIA Vesa Renfors Radoslav Todorov Research and Development in Multinationals Professor Michele Cincera Solvay Business School – Université Libre de Bruxelles March 5, 2008 R&D IN MULTINATIONALS COURSE GROUP ASSIGNMENT Vesa Renfors and Radoslav Todorov TABLE OF CONTENTS INTRODUCTION ................................................................................................................................................... 1 THE ARTICLE ....................................................................................................................................................... 1 I INTRODUCTION TO THE RESEARCH ..................................................................................................................... 1 II HOME‐BASE EXPLOITING AND HOME‐BASE‐AUGMENTING FDI IN R&D .................................................................... 2 III DATA AND MODEL ......................................................................................................................................... 4 IV RESULTS ....................................................................................................................................................... 6 V CONCLUSION ................................................................................................................................................. 6 THE CASE ...................................................................................................................................................................... 7 INTRODUCTION TO NOKIA ......................................................................................................................................... 7 R&D FACTS AND FIGURES ........................................................................................................................................ 8 RESEARCH CENTERS ................................................................................................................................................. 8 ALLIANCE NETWORK .............................................................................................................................................. 10 VENTURING ......................................................................................................................................................... 11 PATENTS AND IPR ................................................................................................................................................. 12 R&D STRATEGY .................................................................................................................................................... 12 ARTICLE ARGUMENTS FOR COMPARISON ......................................................................................................................... 15 COMPARISON OF ARGUMENTS ....................................................................................................................................... 16 I. INCREASINGLY SOPHISTICATED DEMAND ........................................................................................................... 16 II. SPILLOVERS IN CONGLOMERATION AND CLUSTERING ........................................................................................... 16 III. ADDITIONAL EXTERNALITIES ........................................................................................................................... 16 IV. EXTERNALITY INFRASTRUCTURE ....................................................................................................................... 17 V. EXISTENCE OF CORE R&D NEAR HQ ................................................................................................................ 17 VI. HBE’S AND/OR HBA’S .................................................................................................................................. 17 VII. REASONS FOR DISTANCE ................................................................................................................................ 17 CONCLUSION ............................................................................................................................................................... 17 SOURCES .......................................................................................................................................................... 19 APPENDICES ...................................................................................................................................................... 21 APPENDIX I: NOKIA RESEARCH CENTERS ..................................................................................................................... 21 Locations and Research organization ..........................................................................................................................................21 Nokia Core Technology Centers ..................................................................................................................................................23 Nokia Beta Labs ...........................................................................................................................................................................29 Nokia Innovation Center Tampere ..............................................................................................................................................29 APPENDIX II: NATIONAL TECHNOLOGICAL AND INDUSTRIAL ZONES IN GERMANY, CHINA, AND FINLAND .................................. 30 High Tech Industrial Zones in Germany ......................................................................................................................................30 Industrial and Technology Zones in China ..................................................................................................................................31 Science Parks in Finland ..............................................................................................................................................................31 APPENDIX III: STATISTICAL DATA .............................................................................................................................. 32 Tertiary attainment for age group 25‐64 ....................................................................................................................................32 Global Competitiveness and IT Readiness Index .........................................................................................................................32 R&D IN MULTINATIONALS ARTICLE AND CASE REPORT Renfors, Todorov INTRODUCTION The nature of this report is to give a brief summary of an assigned article, a case company, and finally compare the arguments of the former to the latter. The layout of the report is also structured in the same manner. THE ARTICLE The name of the reviewed article is “The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation”. It is written by Walter Kuemmerle in the JOURNAL OF 1 INTERNATIONAL BUSINESS STUDIES of Harvard Business School. The paper examines the determinants of foreign direct investment (FDI) in research and development laboratories by 32 multinational companies in the pharmaceutical and electronics industries. Results from an econometric analysis of 136 laboratory investments show that relative market size and relative strength of country’s science base determine whether FDI in research and development (R&D) is carried out in order to exploit existing firm‐specific advantages (FSA’s), or in order to build new FSA’s. According to the author, this holds true in similar form for Japanese, European and US firms and across the two industries. I INTRODUCTION TO THE RESEARCH Foreign direct investment (FDI) in research and development (R&D) is not a new phenomenon. It has been found2 that since 1930’s the largest European and US firms have carried about 7 per cent of their total R&D abroad, and since the WWII this figure has been rising steadily. The increasing presence of foreign firms R&D sites has left domestic firms concerned about the effects of these investments on inter‐firm competition. Furthermore, it has left governments concerned about the welfare effects of FDI in R&D on the host nations3. The paper by the author makes use of a database that was built up through a systematic survey of laboratory investments carried out by 32 of the world’s largest pharmaceutical and electronics firms4. The database comprises detailed evidence regarding motives and locations of 1 31, 1 (First Quarter 1999): 1-24. 2 Cantwell 1995 3 OECD 1996 and the US Government 1992 4 Kuemmerle 1999 1 (34) R&D IN MULTINATIONALS ARTICLE AND CASE REPORT Renfors, Todorov FDI in R&D. The database, in combination with macro‐economic data on source countries and target countries of investments, permits an innovative look at FDI in R&D. The paper examines the forces that drive firms’ decisions for locating R&D sites in foreign countries. Specifically, the paper develops a separated set of motives for FDI in R&D, namely, that firms invest in R&D sites abroad either to augment1 a firm’s existing stock of knowledge, or to exploit this stock of knowledge within the firm’s boundaries. Section II develops the set of motives. Section III examines potential