HCBE Faculty Articles

Title

R&D Offshoring in Multinational Enterprises: Relevance of Transaction Cost and Internalization Theories

Document Type

Article

Date

2012

Publication Title

Competitiveness Review

ISSN or ISBN

2051-3143

Volume

22

Issue

5

First Page

376

Last Page

395

Description

Purpose – The purpose of this paper is to examine recent trends in R&D offshoring by US multinational enterprises (MNEs) against a well‐established conceptual framework derived from transaction cost and internalization theories, as well as challenges to it.

Design/methodology/approach – The paper develops and tests a parsimonious model of cross‐country variation in R&D performed by affiliates of MNEs based on a 31‐country, 15‐year dataset of US non‐bank majority‐owned foreign affiliates (MOFAs).

Findings – Consistent with the implications of transaction cost and internalization frameworks, the findings show that the location of R&D offshoring is significantly determined by ownership of physical assets by MNEs in the host country and host country technological capability.

Practical implications – R&D offshoring can enhance the quality and the quantity of knowledge flows between home country and host country R&D centers. The resulting positive knowledge spill‐over effects can increase the welfare and productivity of an MNE and its home country in the long run.

Originality/value – The paper provides a comprehensive explanation for MNEs' R&D offshoring based on transaction costs, internalization framework and technological factors.

DOI

10.1108/10595421211266276

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