Academic journal article Management International Review

The Globalization of Canada's R & D

Academic journal article Management International Review

The Globalization of Canada's R & D

Article excerpt

The internationalization of corporate R & D started in the inter-war period, when a few large American and European chemical and electrical equipment producers created research laboratories abroad. The trend became overwhelming after World War II, when American manufacturing corporations invested in Europe, Japan and Canada on a massive scale and located supporting R & D facilities in host countries in order to facilitate technology transfer from their central plants. In the 1970s and 1980s, Western European, Japanese and Canadian firms increased their manufacturing foreign direct investments, mostly in the other countries of the Triad, and new of expatriate research laboratories were created, or were bought from local producers in the same transactions together with local plants and other assets. The pattern varies from country to country and from one industry to the other, but today most large and a few small and medium-sized industrial firms of the twenty largest industrial OECD countries have some research activity abroad.

Canada is no exception to this rule. In fact, Canadian R & D is one of the most internationalized in the world. On one hand, Canadian firms, have the largest research expenditures in the US. On the other, Canada also has the highest percentage of industrial R & D performance financed by foreign sources among industrial nations (National Science Foundation 1993).

In a recent publication, Doz and Prahalad (1994) correctly underlined the fact that theories on the multinational corporations (MNCs) have suffered from overextension and undertesting. It may thus be useful to use the Canadian experience to test and modify some received theories on MNCs and expatriate innovation. The incipient globalization of R & D poses a serious challenge to several received approaches on the internationalization of the firm, primarily to the product cycle model, but also to empirical observation on the level and characteristics of foreign R & D.

Theories on the Internationalization of R & D

Theories of the multinational corporation (MNC) help us to understand the internationalization of R & D.

The Product Life Cycle Model

The Product Life Cycle (PLC) model, associated with R. Vernon and L. T. Wells Jr., argued that firms become multinational as they transfer abroad the innovations produced in their home country for their national markets. Economies of scale in R & D and interaction with affluent and frequent customers will have the effect of keeping R & D at home. Vernon and Wells (Vernon 1979, Vernon/Wells 1991) have lately recognized that the PLC model has lost some of its original appeal, because some large corporations are now able to develop at home new products to serve several different national markets at the same time, or even to develop abroad new products for the world market. In the original model, the internationalization of the R & D activity involved the transferring abroad of the capabilities necessary to modify or adapt to a different (usually less prosperous) market the basic technology produced in the domestic market. In this perspective, foreign R & D laboratories are essentially technology-transfer and support operations. On the basis of case studies, Ronstadt (1984) concluded that technology transfer units (TTUs) are the most frequent type of expatriate R & D laboratory within US MNCs.

The Specific-asset Approach

The specific-asset approach posits that corporations become multinational in order to benefit from past investments in R & D and organization. These investments procure them "special assets" that are difficult to transfer because they consist mostly of knowledge. As knowledge markets are imperfect, companies prefer to control knowledge transactions by transferring these assets to foreign subsidiaries. In doing so they become multinational corporations. This approach was put forward by Stephen Hymer (1976), Richard Caves (1971) and Charles Kindleberger (1969). …

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