Academic journal article Multinational Business Review

Global R&D Activity of U.S. MNCS: Does National Culture Affect Investment Decisions?

Academic journal article Multinational Business Review

Global R&D Activity of U.S. MNCS: Does National Culture Affect Investment Decisions?

Article excerpt

This research reports on an initial exploratory effort to empirically refine the role national culture plays in the location of foreign research and development (R&D) investment. Based on an examination of the R&D investment (in aggregate) abroad by U.S. multinational corporations (MNCs) in 39 countries, the results indicate that culture plays a role in explaining the location of foreign R&D, albeit a limited one, and should be considered in the location/investment decision. Implications of these preliminary findings are discussed in light of the literature linking innovative efforts and culture.

INTRODUCTION

Many MNCs are increasingly locating R&D activities outside their home country (Research Policy Special Issue, 1999). While the location determinants have been studied in depth (e.g., Hakanson, 1992; Kuemmerle, 1999), one potential factor affecting the location of foreign R&D that has received limited attention is national culture. A review of the literature linking national culture and various innovative activities (e.g., Shane 1992, 1993, Herbig and Miller 1992, Kedia, Keller and Julian 1992, Nakata and Sivakumar 1996) suggests that certain cultural characteristics may have a greater propensity to support the varied innovatory activities associated with an MNC's geographically-dispersed R&D operations, offering a potential source of location-based advantage to the firm.

For example, Shane (1992) concluded "some cultures have a comparative advantage in inventive activity that leads them to develop new technologies, ideas, and products. Those nations that..have a comparative advantage in organized, repetitive activity, will often take these inventions and innovations and produce them more efficiently..." Nakata and Sivakumar (1996) raise "the possibility that some cultures may be more adept than others in one phase of the new product development process and are thus more effective choices [for location] for that phase." Kedia, Keller and Julian (1992) explicitly suggest that "managers should consider locating foreign R&D units in countries with national cultures that promote high R&D productivity... [U]nits located in these countries... would tend to outperform others."

To date, however, there has been no attempt to incorporate culture into the decision making for locating R&D facilities abroad. Two recent articles attempting to close this gap include Muralidharan and Phatak (1999), which empirically found that culture distance helped explain differential levels of R&D activity in various countries performed by U.S. MNCs, and Jones and Davis (2000), which proposed a model suggesting a fit between culture and R&D activity type (e.g., more adaptive versus more innovative efforts) would lead to higher performance in foreign R&D operations.2 Together these studies provide an initial step in identifying the potential role national culture might play in foreign R&D investment.

Focusing on the foreign R&D activities of U.S. MNCs, this study builds on Muralidharan and Phatak (1999) by looking beyond the explanatory effect of culture distance alone on differential levels of investment in R&D abroad; and it advances the conceptual propositions of Jones and Davis (2000) on the potential link between culture, foreign R&D investment and the types of R&D activities conducted abroad. Accordingly, this exploratory effort: 1) empirically tests if national culture is a significant determinant of foreign R&D investment in general, and 2) discusses how that knowledge might inform the location decision and our understanding of the differing types of R&D activities undertaken abroad.

THEORY AND PROPOSITIONS

The eclectic theory of foreign direct investment (Dunning, 1988) suggests that certain locations offer differential advantages to the locating firm, which helps explain the investment decision. The eclectic model also suggests that locational advantages vary according to the activity performed by the investing firm in the host country. …

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