Geography Reference
In-Depth Information
share of MNE foreign affiliate R&D activity from 1.7 per cent in 1996 to
6.9 per cent in 2002, and this comprises of 0.8 per cent and 6.2 per cent
by developing countries, and 0.4 per cent and 0.7 per cent by transition
economies, respectively for the two years considered (UNCTAD 2005).
As we discussed in Chapter 5, the major motivation for MNEs to locate
their R&D in knowledge-regions or centres of excellence in developed
economies is to benefit from localized knowledge spillovers and to tap into
and monitor technological and innovative activities of local firms. The
location of MNE R&D functions in developing and transition economies
is instead motivated by one, or a combination of, the following factors: to
support foreign production by adaptations to the specific conditions of the
market in which products are sold; the availability of R&D personnel or
other resources required for R&D activities at a relatively lower cost than
in the home location; in order to benefit from the R&D subsidies provided
by host governments (Kumar 1996, 2001).
Overall, the increasing role in R&D played by the foreign affiliates of
MNEs and the growing attractiveness of developing countries - and of
specific regions within their boundaries - as locations for their foreign
affiliates are clearly emerging trends which are likely to continue in spite of
the global financial crisis. As such, although the relative scale is still much
smaller, the role played by developing economies in the global multina-
tional R&D effort is increasing faster than that of the advanced economies
(UNCTAD 2005). For example, in terms of the foreign R&D expenditure
of US MNEs, the share accounted for by developed countries (including
Korea, Taiwan, Hong Kong and Singapore) decreased from 95.1 per cent
in 1994 to 88.3 per cent in 2002, while the share of developing and transi-
tion economies more than doubled from 4.9 per cent in 1994 to 11.7 per
cent in 2002 (UNCTAD 2005; see also Revilla Diez and Kiese 2006).
Understanding these trends of geographical dispersion by multination-
als, not just in terms of the levels of foreign investment, but also in terms of
the changes in their foreign affiliates' role in R&D generation and in inno-
vation processes more generally, is critical because these types of invest-
ments open up the host economy to the latest technology, knowledge and
learning, all of which are crucial growth engines and competitive assets.
As we have seen in Chapters 4 and 5, MNEs can act as critical conduits
for technology transfer. In FDI-led manufacturing and service industries
- especially, but not exclusively, those with relatively high technology or
knowledge content - in less advanced countries, MNEs are critical actors
in the creation of technological capabilities (Revilla Diez and Berger
2004; Padilla-Perez 2006; Iammarino et al. 2008). Their interactions with,
and indirect impact on the other actors of the local recipient system are
crucial. MNEs have been a very important source of technology transfer -
