Coordination in global R&D organizations: An examination of the role of subsidiary mandate and modular product architectures in dispersed R&D organizations

International research and development (R&D) operations require a significant amount of coordination between the headquarters and the subsidiaries in order to integrate the dispersed activities in one final product. This article explores what mechanisms multinational companies (MNCs) use to coordinate their overseas R&D units. Based on a multiple case study involving nine MNCs with overseas R&D subsidiaries of varying mandates, we find that R&D sites with high technology and/or market orientation tend to be coordinated by informal mechanisms while sites with little technology and/or market orientation tend to be coordinated by formal mechanisms. Furthermore, it appears that this relationship is strongly affected by the product’s architecture: while rather complex R&D activities are conducted at the systems level and at sites with high technology orientation, less complex R&D activities are conducted at the component level at sites with low technology and market orientation. Finally, the findings suggest that modular product architectures have a coordinating effect in global R&D activities which have the power to lower firms’ overall coordination effort. The findings bear important implications for the effective coordination of MNCs’ international R&D subsidiaries.     

R&D,Interindustry and International Technology Spillovers and the Total Factor Productivity Growth of Manufacturing Industries in Canada, 1974-1989

The paper presents new econometric evidence on the relationship between total factor productivity growth and the R&D expenditures of Canadian manufacturing industries in the presence of interindustry and international spillovers of technology. In contrast to studies that presume that international spillovers are incorporated in imports of intermediate and/or capital equipment goods, the present paper assumes that the principal channel of transmission of new technology is foreign direct investment. Three original proxies for international spillovers use information on patenting, the size and the origin of foreign ownership in the host country and the R&D expenditures in the country of origin. The results suggest that the nexus between industry's own R&D expenditures and the TFP growth is significant and positive, especially for the process-related R&D. Domestic interindustry spillovers of new technology have a larger effect on TFP than industry's own R&D expenditures. All three proxies for international technology spillovers are associated positively and significantly with TFP growth. However, international spillovers contribute to TFP growth less than domestic interindustry spillovers and less than own process-related R&D.     

Short-term R&D bias,competition on cost rather than innovation,and time to market

Mounting evidence indicates that capital markets often apply short-term pressure on firms to gain short-term results by focusing primarily on reported financial performance. As a result of short termism, it has been argued that companies are likely to cut expenditure on R&D which might otherwise improve longer-term performance. As there is a growing consensus that R&D is critically important to both organizational and national performance, short termism may have significant detrimental organizational consequences. One implication arising from a short-term R&D bias, and examined in this paper, is its effect on market time reduction. Arguments are examined that suggest a dominant R&D strategy is to reduce product time to market. Concerns have been expressed, however, that such a strategy is applicable in specific circumstances only. A review of the literature suggests that analyst and shareholder bias against high-risk, long-term research in favor of lower-risk, short-term product R&D influences organizations to reduce the time it takes to get a product to market when the emphasis in the marketplace is on cost competition rather than product innovation. The findings of the study suggest that when the emphasis on competition on cost rather than innovation is low, short-term R&D bias does not affect market time. In contrast, when the emphasis on competition on cost rather than innovation is high, the results indicate that short-term R&D bias positively influences market time reduction. The study concludes with suggestions for further research.     

Investments in R&D and innovative behavior: an exploratory cross-country study

The relationship between investments in research and development (R&D) and innovative behavior, measured in terms of new products or services being delivered to the market, is well documented in the literature. This paper departs from the extant literature in that the unit of observation is a country rather than a firm. Using World Bank aggregate data, this level of analysis thus allows for a systematic study of cross-country observations on an R&D ? Innovation relationship.

     

Learning from R&D outsourcing vs. learning by R&D outsourcing

We analyze how research and development (R&D) outsourcing influences product innovation. We propose a separation between learning from R&D outsourcing, whereby the firm improves its ability to innovate by using outsourced R&D directly in new products, from learning by R&D outsourcing, whereby the firm indirectly uses outsourced R&D by integrating it with internal R&D to create new products. Building on the knowledge-based view, we argue that learning from R&D outsourcing is likely to have an inverse U-shaped relationship with product innovation, because the initial benefits of using outsourced component R&D knowledge to innovate products is eventually outweighed by the hollowing out of the firm's ability to innovate. In contrast, we propose that learning by R&D outsourcing is likely to have a U-shaped relationship with product innovation, because the initial challenges of integrating internal and external R&D are eventually overcome, resulting in more innovations. Finally, we distinguish between domestic and foreign R&D outsourcing and propose a liability of foreignness in R&D outsourcing as it has a lower impact on new products than domestic R&D outsourcing. The empirical analysis shows that outsourced R&D has an inverted U-shaped relationship with the number of new products, while the interaction between outsourced R&D and internal R&D has a U-shaped relationship with the number of new products. It also shows that domestic outsourced R&D has a higher positive impact on the number of new products than foreign outsourced R&D.     

The negative impact of R&D capitalization: A value relevance approach

Abstract

Accounting for R&D costs is an open issue. SFAS N°2 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capitalized R&D is not associated with higher prices and is related to lower returns.     

Political market failure? The effect of government unity on energy technology policy in industrialized democracies

When do governments implement technology policies that allow society to solve social problems at a lower cost? Focusing on the case of energy, we argue that in industrialized democracies, severe social problems provoke an effective technology policy response when the government is unified. A unified government can easily strike the bargains required to secure political support for new technology programs. We test this theory against data on public energy research and development (R&D) in 22 OECD countries, 1980–2006. We find that as government fractionalization increases in a country, the sensitivity of public energy R&D to wasteful energy use, which presents economic and environmental difficulties to the society, declines. The analysis reveals a new reason for ineffective technology policies and contributes to the broad literature on political market failure.     

Exploring the operating efficiency of Technology Development Programs by an intellectual capital perspective—A case study of Taiwan

Government supported technological research and development can help the private sector to compete globally. A more accurate evaluation system considering multi-factor performance is highly desired. This study offers an alternative perspective and characterization of the performance of Technology Development Programs (TDPs) via a two-stage process that emphasizes research and development (R&D) and technology diffusion. This study shall employ a sequential data envelopment analysis (DEA) with a non-parametric statistical analysis to analyze differences in intellectual capital variables among various TDPs. The results reveal that R&D performance is better than technology diffusion performance for the TDPs. In addition, the “Mechanical, Mechatronic, and Transportation field” is more efficient than the other fields in both R&D and technology diffusion performance models. The findings of this study point to the importance of intellectual capital in achieving high levels of TDP efficiency. The potential applications and strengths of DEA and intellectual capital in assessing the performance of TDP are also highlighted.     

Determinants of industrial innovation in China: Evidence from its recent economic census

This study examines the sources of technological innovation in Chinese industries using the 2004 economic census data. On the one hand, it analyzes the relationships between patent grants and new product sales. On the other hand, it analyzes the relationships among in-house R&D, technology transfer from foreign and Chinese domestic technology markets, spillover effects of foreign investment, as well as export. The study reveals that in-house R&D has become the most important source for industrial innovation in China. In-house technological efforts are critical for developing original innovations as well as for absorbing the technologies transferred from external agencies. However, neither technologies transferred from foreign countries nor those from the domestic technology market are playing significant roles in China’s industrial innovation. The spillover effect of foreign investment on patent grants is strong and significant, though its impact on new product sales is insignificant. Export shows negative, though insignificant, impact on patent grants, but positive, strong, and significant effects on new product development. Overall, the results of this study demonstrate the critical role of in-house R&D in China’s industrial innovation.     

Impact of R&D and Technology Diffusion on Productivity Growth: Empirical Evidence for 10 OECD Countries

This paper examines the empirical evidence on the impact of performed R&D and of R&D embodied in intermediate and capital goods on productivity performance in 10 major OECD countries over the last two decades. To quantify intersectoral and international technology flows, industry-level embodied R&D variables were constructed from an input–output (IO) R&D embodiment model. The productivity variables used are discrete Divisia growth indexes of total factor productivity (TFP), which were estimated from an IO growth accounting model. The results from pooled regressions indicate that the rates of return of the R&D variables were positively significant and increasing in the 1980s. In particular, embodied R&D is an important source for TFP growth in services, indicating very high social returns of the flows of capital-embodied technology into this sector. Moreover, the information and communi-cation technology (ICT) cluster of industries played a major role in the generation and cquisition of new technologies at the international level.     

An analysis of firm-level innovation strategies in the US biotechnology industry

This study examines factors that may affect innovation strategies and performance of firms in the biotechnology industry. Specifically, differences between factors common to firms with high R&D intensity and those to firms with low R&D intensity are investigated. Biotechnology firms with relatively higher levels of R&D intensity attribute their innovation performance to research-based innovation factors and strategies such as strengthening their own research capabilities, entering into research collaborations with universities, industry leaders and other biotech firms, and licensing their technology. These strategies can be summarized as alignment within the industry. Firms with relatively lower R&D intensity have a hybrid focus—they invest in R&D but may also have products on the market. These firms attribute their innovation performance more so to production-based innovation factors and strategies such as gaining market access and maintaining connections with customers. Their strategy focuses on competitiveness, marketing, and distribution channels, while not ignoring the importance of a strong research base and the need to advance technologically. In a sense, strategies employed to achieve successful innovation reflect the stage of innovation in which a firm is operating for a particular product or process.     

A systematic way of identifying and forecasting technological reverse salients using QFD,bibliometrics, and trend impact analysis: A carbon nanotube biosensor case

Experts have more difficulty identifying reverse salients in R&D because of increasing technological complexity and a shortened technology lifecycle. As an alternative, we suggest a new and systematic method of identifying and forecasting reverse salients using QFD (quality function deployment), bibliometric analysis, and TIA (trend impact analysis). QFD allows users to systematically identify and prioritize reverse salients. An integration of QFD, bibliometric analysis, and TIA makes it possible to specify key performance indicators of reverse salient in order to identify the performance gap between current and market-required performance and to make a probabilistic forecast about when reverse salients will be corrected. Our method will help managers identify a top priority reverse salient, forecast its future, and thus make better R&D decisions with regard to market requirements. A carbon nanotube biosensor technology is used as an example.     

Technology ladders and R&D in dynamic Cournot markets

Motivated by dramatic and unpredictable technological advances in energy production (for instance drilling and extraction of shale oil), we extend Cournot models of competition to incorporate research and development (R&D) that can lead to (stochastic) drops in production costs. Our model combines features of patent racing with dynamic market structure, capturing the interplay between the immediate competition in terms of production rates and the long-term competition in R&D. The resulting Markov Nash equilibrium is found from a sequence of one-step static games arising between R&D successes, and several numerical examples and extensive analysis of the emerging comparative statics are presented. Analyzing the relationship between current market dominance and the level of R&D investments, we find that market leaders tend to invest more, which in some sense makes oligopoly dynamically unstable. We show that anticipated market transitions have long-term impact; for example the potential of future monopoly can spur R&D investment now, even if the firm is presently uncompetitive and not actively producing. We also show that, surprisingly, random innovations have an ambiguous effect on R&D. This feature, which is driven by the Cournot framework, contrasts with the common situation whereby uncertainty lowers innovation and delays R&D investments. Finally, we demonstrate that increased competition may actually increase efforts to innovate through higher desire to achieve dominance. This would match the anecdotal evidence that the threat of market entrants forces incumbents to maintain high R&D.     

How to optimize the allocation of research resources? An empirical study based on output and substitution elasticities of universities in Chinese provincial level

Although significant progress has been made in China's basic research in recent years, there remains a wide gap between research in China and that from developed countries. How to optimize the allocative efficiency of research resources is of great importance for increasing research output. In this paper, using the fixed effect stochastic frontier model based on the translog production function, we estimate output and substitution elasticities of research and development (R&D) inputs at universities in China's provincial level during 2009–2016. We find that the R&D technical efficiency of China's universities, after a rapid growth, has tended to become relatively stable. Improvements of internationalization degree and exogenous R&D capabilities are conducive to promoting R&D technical efficiency, whereas expenditures from government grants inhibit the promotion of R&D technical efficiency; the effects of R&D capital deepening and internet penetration are not evident. The output elasticity of R&D capital is much higher than that of R&D personnel, suggesting that R&D capital is the main driving force of research output. The substitution elasticity between R&D capital and personnel has experienced a change from substitution to complementary since 2014. To realize sustained growth of research output, we should increase R&D input with positive output elasticity or reduce R&D input with negative output elasticity, making the necessary trade-offs according to the substitution relationship between the two R&D inputs.     

The dark side of stock market liberalization: Perspectives from corporate R&D activities in China

This study explores how stock market liberalization impacts corporate research and development (R&D) activities and examines the impact channels. Based on a quasi-natural experiment on the Shanghai-Hong Kong Stock Connect, we report a significantly negative relationship between stock market liberalization and R&D activities in non-state-owned enterprises (non-SOEs) using a difference-in-difference approach. For one thing, a decrease in analyst coverage will reduce the supervision of R&D activities; for another, the alleviation of financing constraints will heighten corporate financialization, resulting in a greater crowding-out effect on R&D activities. Furthermore, R&D activities in SOEs, which are guided by government policies, are not significantly affected by stock market liberalization.     

Capitalizing Research & Development: Signaling or Earnings Management?

This paper analyzes the capitalization of Research & Development (R&D) expenditures under International Financial Reporting Standards (IFRS). Discretionary R&D capitalization can be exercised by managers to signal private information on future economic benefits to the market. It can, however, also serve as opportunistic earnings management. We analyze a unique, hand-collected sample of highly R&D intensive German IFRS firms during 1998–2012. We find that market values are not associated with capitalized R&D for the overall sample, indicating that earnings management may be a concern. We identify firm-years for which R&D capitalization is possibly used for pushing their earnings above a specific threshold (e.g. analysts' forecasted earnings, prior year's earnings). Our results show that both the decision to capitalize and how much to capitalize are strongly associated with benchmark beating. Consistently, we find that market values are negatively associated with capitalized R&D for firms who are likely to use capitalization for benchmark beating (about one third of the overall sample). On the other hand, the market values R&D capitalization positively for well-performing firms, for which capitalizing does not matter to beat an earnings benchmark (about half of the overall sample). This finding is robust to controls for endogeneity, various deflators, and different measures for earnings management.     

Strategic R&D Location by Multinational Firms: Spillovers, Technology Sourcing, and Competition

This paper develops a model of strategic interaction in R&D internationalization decisions between two multinational firms, competing both abroad and in their home markets. It examines different incentives for foreign R&D faced by a technology leader and a technology laggard. The model takes into account the impact of local inter firm R&D spillovers, (noncostless) international intra firm transfer of knowledge, and the notion that internal R&D increases the effectiveness of incoming spillovers. Analytical results suggest that greater efficiency of intra firm transfers and greater R&D spillovers increase the attractiveness of domestic R&D for the technology leader if the technology gap with the laggard is large. The lagging firm, in contrast, increases the share of foreign R&D as foreign technology sourcing becomes more effective. Competition encourages the leading firm to engage in foreign R&D to capture a larger share of profits on the foreign market, whereas the laggard concentrates more R&D at home to defend its home market position.     

Dynamic Spatial Monopoly with Product Development

Abstract

The optimal R&D investment in product innovation of a profit-seeking monopolist is characterized vs that of a social planner in a spatial market with transportation disutility, under full market coverage. It is shown that the planner's incentive to innovate is always weaker than the monopolist's, since the planner trades off the minimization of the social cost of transportation against the cost of R&D.     

MNEs,technological efforts and channels of export spillover: An analysis of Indian manufacturing industries

The present study provides some empirical evidence for the export spillover effect examining the case of an emerging market economy, namely India, using firm level data for the period 1994–2006. We disentangle different spillover channels, namely the demonstration effect, the imitation effect (R&D spillover) and a proxy to measure spillover effects coming from higher MNEs’ skills. We also account for the heterogeneous technological behaviour of local firms considering how in-house R&D efforts and disembodied technological imports may affect the exporting performance. Our findings show how export spillover effects are mainly mediated by an imitation effect, contrary to the case of other emerging market economies like China, where a demonstration effect is evident. We also recognise that both the decision to export and export intensity are influenced most of all by the technological activities of local firms. Moreover, the findings of the analysis suggest that in-house R&D is more relevant than other external sources of technological knowledge such as disembodied technology imports to internalise the positive spillover effect emanating from MNEs.     

The cognitive and the action-oriented elements of competence along the innovation process – evidence from R&D teams in the medical equipment sector

Abstract

Organizations are constantly searching for ways to enhance their innovative capacity and to sustain their competitive advantage. Much of the literature focuses on knowledge as the key driver for this pursuit. Unlike other studies, we define experience and knowledge as two basic elements of competence by borrowing from the experiential and cognitive learning theories and contrast their impact on the innovativeness of R&D teams. Building on the competence based perspective, we posit that the differences in competence inputs explain variations in team innovation performance along the innovation process. To test our assumptions, we analyzed the aggregated knowledge and experience levels for different technology competences of 868 employees in 49 R&D teams in a large contract-engineering corporation in the medical equipment sector. The findings reveal that technology experience is particularly fruitful within innovation implementation and is a driver for successful market introduction. The research contributes to the understanding when competence elements are especially important.