Factors affecting foreign R&D location decisions: management and host policy implications

Abstract

Multinational corporations (MNCs) are continuing to internationalise their R&D activities, locating innovatory capacity abroad. The location of these activities is of vital importance to technology managers and potential host countries. Using country-level data from a variety of governmental sources, the authors empirically address the affect of multiple factors potentially motivating investment by US MNCs in foreign R&D activities. The current study complements and extends existing studies by identifying new factors, operationalising others in a new way and more narrowly defining previously studied variables, highlighting the sensitivity of findings to variable definitions. The results indicate that firms locate foreign R&D capabilities in the primary markets for the products produced by their overseas affiliate, that they value the availability of highly educated graduates in the sciences and engineering fields for staffing their overseas operations and that cost is not a significant factor driving the location decision. Management and host government policy implications are discussed.