Author:

Keywords:

R&D internationalization, location strategy, home country bias, innovation

Abstract:

Despite an increasing internationalization of R&D activities by multinational firms, a major portion of corporate R&D still tends to be concentrated in firms’ home countries. We examine to what extent there exists a home country bias in the location of R&D activities of 156 major R&D intensive firms based in Europe, the US and Japan during 1995-2002 and develop hypotheses concerning the firm-level determinants of such home country bias. We define this bias as a share of global R&D activities conducted in the home country that is not proportional to the general attractiveness of the country for multinational firms' R&D activities. We find home bias to be the predominant pattern, but with substantial variation among firms. The extent of the bias increases with the degree of scale and scope economies in R&D, coordination costs of international R&D, and the embeddedness of firms’ R&D in home countries’ innovation systems. Technology leadership is associated with greater home bias if the home country provides relatively strong intellectual property rights protection and firms face potential knowledge dissipation abroad. Our findings imply that home country bias is to an important extent a response to the economics of R&D and centripetal forces favoring centralization of R&D.