Geography Reference
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to such interactions. Yet, different interpretations have been put forward
regarding the links between multinationality and innovation-intensity.
Firstly, the degree of multinational expansion has been seen as a function
of the firm's R&D-intensity, which is typically used as a proxy for the
level and complexity of the firm's accumulated technological competence.
Along these lines, two approaches can be distinguished. On the one hand,
there is the industrial organization view, where, on the basis of the linear
model of technological processes, investment in R&D leads directly to cost
reductions and higher quality products, increased corporate competitive-
ness and larger market shares and, ultimately to a stronger international
expansion (Dunning 1970; Markusen 1984). On the other hand, there are
the transactions cost theories which propose that R&D activities generate
more intensive knowledge flows and a greater complexity in transactions
which, in turn, lead to a greater degree of vertical integration, industrial
concentration, and the expansion of firms across national boundaries
(Buckley and Casson 1976; Hennart 1977; Rugman 1981).
A second interpretation has instead emphasized the two-way rela-
tionship between multinational expansion and innovation. According
to the resource- and competence-based theories of firms' growth, it is
misleading to treat high R&D-intensity as the cause of greater multina-
tional expansion or increasing international market shares. Instead, high
R&D-intensity and internationalization are viewed as complements in
the accumulation of more advanced levels of technological competence
and capabilities, and these account for strong firm heterogeneity (e.g.,
Cantwell 1989, 1992; Patel and Pavitt, 1991; Kuemmerle 1999; Petit and
Sanna-Randaccio 2000; Castellani and Zanfei 2006; Frenz and Ietto-
Gillies 2007a, b). Technological competence is seen to provide firms with
inherent (dynamic) capabilities for expansion through continued learning
in production. In turn, faster and more effective learning generates greater
competence, and hence rising market shares. Learning processes display
various modalities, such as R&D, but at the same time they also involve
design, redesign, product and organizational improvements, and cultural
and institutional learning which derive from multiple international loca-
tional structures. The MNE therefore becomes a repository of technologi-
cal competence and a device for the accumulation of capabilities (Cantwell
1991).
It should be noted, however, that beyond the different interpretations
of the relationship between multinationality and innovativeness, it still
remains true that R&D functions, which are seen as part of wider innova-
tion processes, gain in importance as technological progress becomes more
complex. A higher level of skills and organizational expertise is associated
with the use and generation of larger stocks of knowledge. Therefore
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