MERIT-Infonomics Research Memorandum series The relative importance of home and host innovation systems in the internationalisation of MNE R&D: a patent citation analysis

This paper examines the phenomenon of home base augmenting (HBA) R&D and home base exploiting (HBE) R&D. It has three novelties. First, we argue that any given R&D facility’s capacity to exploit and/or augment technological competences is a function not just of its own resources, but the efficiency with which it can utilise complementary resources associated with the relevant local innovation system. Just as HBA activities require proximity to the economic units (and thus the innovation system) from which they seek to learn, HBE activities draw from the parent’s technological resources as well as from the other assets of home location’s innovation system. Furthermore, we argue that most firms tend to undertake both HBE and HBA activities simultaneously. Second, we use patent citation data from the European Patent Office to quantify the relative HBA vs. HBE character of foreign-located R&D. Third, we do so for European MNEs located in the US, as well as US MNEs located in Europe. Our results indicate that both EU (US) affiliates in the US (EU) rely extensively on home region knowledge sources, although they appear to exploit the host country knowledge base as well. The HBA component of US R&D in Europe in chemicals, electronics and petroleum refining is stronger than their European counterparts, as is the case for European R&D activities in the US in engineering.