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The Globalization of R&D Sony and Matsushita

The Globalization of R&D Sony and Matsushita. EMBA BA 804, Fall 2004 Ram Mudambi Temple University. Background.

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The Globalization of R&D Sony and Matsushita

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  1. The Globalization of R&DSony and Matsushita EMBA BA 804, Fall 2004 Ram Mudambi Temple University

  2. Background • Historically, most affiliates with R&D were competence-exploiting: they adapted products for local markets, adapted processes to local production conditions, or adapted local resource extraction methods • Two complementary theories • The product cycle model (Vernon, 1966) • The stage theory (Johanson and Vahlne, 1977)

  3. Subsidiary evolution • A shift towards competence creation in the internationally dispersed networks of MNEs, since at least 1980 • Alternative taxonomies: • Research-related vs. assembly-type production facilities • Asset-seeking vs. market-servicing FDI • Global, transnational or heterarchical vs. multi-domestic strategy • Home-base exploiting vs. home-base augmenting FDI • Center of excellence subsidiary mandate

  4. Drivers of subsidiary evolution • Demand • Increased demands for customized products driven by increases in wealth • Supply • Increased pace of technological change, reduced cycle times • Institutional change • Falling trade barriers, increased competitive pressures

  5. Knowledge flows within MNEs: Evidence • Firm organization – Gupta and Govindarajan • Nature of knowledge – Cantwell and Santangelo • Nature of location – Cantwell and Janne • Differences across industries and even across firms within industries – I. Zander • Political processes within the MNE – Forsgren et al, Forsgren and Pedersen

  6. Knowledge flows: 5 inter-related aspects • The source-target specification • The relative size of flows • The market structure within which flows occur • The flow and the firm’s business process • The applicability of the flow

  7. The source-target specification Spillovers Knowledge transfer Home Host 3 1 2 Numeraire knowledge flow (from parent to subsidiary) Learning

  8. Table 2 Case Level of Knowledge Flow 1 Transfer 2Learning 3 Spillover A H H H B H H L C L H H D L H L E L L H F L L L G H L H I H L L The relative size of flows

  9. The effect of market structure • Perceptions of flow 3 (spillovers) • Knowledge as a private good – Intec’l Prpty • spillovers perceived negatively • Knowledge as a public good • Virtuous cycle of cluster development – present spillovers enhance future learning • Oligopolies are more sensitive to strategic interdependence • Present losses may outweigh possible future gains

  10. The firm’s business process • Core vs. complementary knowledge flows • Oligopolistic market structure  core knowledge creation is unlikely to be co-located • However, complementary knowledge creation activities are likely to be co-located with leading firms in that activity

  11. Market structure and business process effects Home Host Complementary location Oligopolist Home Host Co-location Competitive firm

  12. Knowledge applicability • Widely applicable knowledge is likely to form complementary knowledge in a wide variety of industries • Specialized knowledge is likely to have a narrow applicability • Clusters are most likely to coalesce around widely applicable knowledge

  13. General purpose technologies • Since internationalized innovation is often diversified and supports core technological development at home, the exchange of general purpose technologies is important in international centers of excellence • In such centers the industrial profile of foreign-owned and indigenous innovative specialization is generally unrelated

  14. Dispersing knowledge creation • Some kinds of knowledge creation have remained strongly localized, and MNEs provide the links between localized networks and international interchange • Other kinds of knowledge creation are more widely geographically dispersed, typically the non-primary technologies of a firm and less tacit types of technology

  15. Location attractiveness • For competence-creating subsidiaries (but not competence-exploiting) the presence of local skills, educational resources and research infrastructure is critical • A good science base is especially attractive to the location of internationally mobile corporate research facilities • Science-technology linkages matter more

  16. The role of M&As • The role of M&As in the recent restructuring of international networks for innovation is crucial • While M&As have a negative effect on R&D in acquired competence-exploiting subsidiaries (the elimination of duplication), they have a positive effect where the purpose of FDI was strategic asset-seeking

  17. Local contribution projects 1988 R&D Center Global projects Matsushita Country 1 From late ’70s Home Country Operation Country 2 Country 3

  18. Through ’88 Focused on local contribution projects Zone CTO Sony Country 1 Home Country Operation 1988 Corporate Research Lab Country 2 Country 3

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