Location and network determinants of technology seeking versus technology exploiting FDI

The nature and economic effects of innovation activities of foreign affiliates of multinational enterprises (MNEs) on their host countries is a popular topic in the current literature on the globalization of technology. In general, firms have different motives for expanding into foreign markets, including the sourcing of low-cost factors of production, the search for markets, the avoidance of taxes, etc. (Chung and Alcacer, 2002). In addition to these traditional, knowledge- and asset-exploiting motives, more recent work has analyzed the motives for and magnitude of knowledge or asset-seeking investment motives, focusing on the importance of R&D and innovation (see for instance Kuemmerle, 1999; Narula and Zanfei, 2004). In fact, the incessant search by MNEs for sustainable competitive advantage has led to an increasing attention to the strategies of affiliates of these multinational companies. As part of this process, proactive MNEs seek –and the reactive ones are forced to seek– a variety of ways in which their foreign affiliates can help increase the vibrancy of corporate strategy (Bartlett and Ghoshal, 1986). Subsidiary companies have been shown to be able to contribute to the competitive advantages of the MNE (Birkinshaw, et al., 1998) and even develop subsidiary-specific advantages (Moore and Heeler, 1998; Rugman and Verbeke, 2001). Headquarters are no longer seen as the brains of the firm. Instead, the MNE is conceptualised as a brain (Hedlund and Rolander, 1990). The different subsidiaries have specific roles and strategies in the context of the MNE as a differentiated network. The purpose of the current paper is twofold. First, we develop a taxonomy of subsidiaries , allowing us to distinguish different motivations for foreign investment in R&D. Unlike earlier research, we exploit unique and detailed information on foreign subsidiaries’ innovative performance to distinguish between different types of foreign subsidiary. Second, we investigate the characteristics of these firms . Apart from subsidiary- and parent-specific variables, we further allow locations (within Belgium) to differ in their attractiveness for FDI of a particular type.status: publishe