Knowledge spillovers and the assignment of R&D responsibilities to foreign subsidiaries

Research on R&D location choice by MNCs has focused largely on host country factor endow-ments and overlooked the role that the potential to capture and utilize knowledge spillovers from competitors may also play in determining such choices. Using a large-scale panel database of the foreign subsidiaries of U.S.-based MNCs in above-average R&D-intensive industries, we examine the extent to which external spillover opportunities as well as internal firm-specific capabilities to utilize such knowledge affect MNCs ’ new R&D location decisions. Our findings suggest that MNCs appear to anticipate potential spillover opportunities and are discriminating in assessing these opportunities not only across locations but also across categories of com-petitors within the same location. Further, our findings provide stronger support to predictions regarding the salience of global utilization capacity than they do to predictions regarding the salience of local utilization capacity. Copyright 2004 John Wiley & Sons, Ltd. Some of the most important decisions by MNCs involve the location of specific activities in the value chain (Buckley and Casson, 1976; Caves, 1971; Dunning, 1980; Hymer, 1976; Kogut 1985; Porter, 1986). Over the last few decades, the bulk of research on this topic has focused on loca-tion choices pertaining to foreign direct investment (FDI) in manufacturing operations (e.g., Cough