The Contribution of Multinational Enterprises to the Upgrading of National Innovation Systems in the Eu New Member States: Policy Implications

This paper addresses the role of multinational enterprises (MNE) in the upgrading of national innovation systems and the policies that the new member states (NMS) of the European Union (EU) can put in place to enhance it. We use the innovation systems approach as a basis for analyzing policy options and focus on the MNE and the potential for linkages, rather than limiting our analysis to foreign direct investment (FDI) and spillovers. We also deliberately consider the scope and competence at the MNE subsidiary level. These two perspectives are useful in helping highlight the point that the tendency to focus on FDI inflows is flawed, since knowledge exchanges and innovation are establishment level phenomena. Instead, policies should focus on the embedding and upgrading of MNE subsidiaries already present in the country, with the aim of facilitating their evolution towards higher value adding activities and their tendency to engage in R&D. We argue that this approach requires a closer interplay between FDI, innovation and industrial policies. We also sustain that it is more practical for new member states to concentrate on attracting „demand-driven‟ rather than „supply-driven‟ R&D, and thus recommend governments to set up programmes that foster demand-oriented upgrading of human capital and public R&D.