COMPETENCE-CREATING vs. COMPETENCE-EXPLOITING ACTIVITIES OF FOREIGN-OWNED MNCs: HOW INTERACTION WITH LOCAL NETWORKS AFFECTS THEIR LOCATION

This paper examines how the characteristics of local inter-firm networks affect the location of subsidiary research and development (R&D) facilities. It distinguishes between subsidiary R&D that is competence-creating (creates new lines of technology for the multinational corporate group) and competence-exploiting (adapts established lines of technology). The key dimensions of local networks are the degree of cross-firm concentration or diversity in the relevant industry, and the relative presence of domestically-owned versus foreign-owned firms. The empirical investigation uses patents granted in the US to the world’s largest industrial firms for inventions achieved in their European-located operations, classified by the host European region in which the research facility responsible is locate, over the period 1987-1995. Intra-industry spillovers are positive from dominant insider firms that are well connected locally, but negative when these insiders are domestically-owned. Foreign-foreign spillovers from non-dominant firms are positive in the competence-creating case.