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Internationalization of R&D Activities: Comparison of Japanese and European Multinational

Firms in the United States

We investigate regional difference in the degree of internationalization of R&D and

organizational characteristics of multinational companies
companies (MNCs)
(MNCs) to enable absorptive
capability (AC) to absorb technological knowledge from the United States by Japanese and
European (mainly in German) MNCs. The findings show there are significant regional
differences in organization, and suggest that MNCs are
are constrained for increasing their AC by
the national environments, in particular those related to R&D people.
people

INTRODUCTION

In the past few decades, the world has seen the emergence of new technologies (e.g.,
information technology (IT) and biotechnology) that serve as key technologies across sectors.
In response to this, the management and organization of existing firms have been changing to
exploit these new technologies and create new markets. The intensity of internationalization
of R&D to exploit local knowledge has taken on increasing significance (Cantwell and
Piscitello, 2000) whereas the internationalization of R&D has accelerated and is concentrated
heavily in the ‘triad’, i.e., the United States, Japan and several EU countries, with the US as a
center (Edler, Meyer-Krahmer, and Reger, 2002). There are clear differences in degrees of
international absorption of R&D knowledge by country, though there is considerable variance
within countries, suggesting scope for managerial choice (Patel & Pavitt, 1991, 1997). Japan
and Germany are lagging far behind the UK and Switzerland (Gambardella, Orsenigo, and
Pammolli, 2000).

This paper focuses on the absorptive capability (AC) of technological knowledge from the
United States by Japanese and European (mainly German) multinational companies (MNCs)
in the electronics, automobile, pharmaceuticals, and chemical industries. Employing the
notion of ‘absorptive capacity’ (Cohen and Levinthal, 1990)’ based on the framework of the
resource-based view of a firm (RBV) and ‘dynamic capabilities’, we analyze the organizational
difference between Japanese and European MNCs, which influence AC, and environmental
determinants, which shape organizations within.

To remain internationally competitive, high technology based MNCs need to acquire and
exploit technologies globally. There is a considerable evidence that MNCs continue to be
shaped by their home environments (Bartlett and Ghoshal, 1998; Porter, 1990). When they
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straddle multiple sets of national environments, they therefore need to adjust their
organization to the surroundings in the host country. However, since their headquarters are
constrained by the home country environments, these adjustments may not be possible to
enforce. With regard to AC, firms aiming to absorb technologies abroad may not be able to
adjust their organization to the host country because of the environmental pressure in the
home country.

By comparing MNCs headquartered in the two regions, Japan and Europe, and their
respective home environments, this paper addresses the following questions: (1) What
differences may exist in the degree of internationalization of R&D between European and
East Asian MNCs?; (2) What are the differences in the organization of R&D personnel
between European and East Asian MNCs?; (3) How may home environments differ and
influence the organizational characteristics of European and East Asian MNCs?

Our empirical analyses show that there are distinctive degrees of international R&D among
East Asian and European MNCs. In addition, certain organizational characteristics regarding
R&D people have significant associations with AC in the United States. Moreover, these
characteristics differ significantly between European and East Asian MNCs. These results
suggest the home environments in the two regions, Japan and Europe, may influence the
characteristics of firms’ R&D activities not only in the home country, but also those abroad.
Experience of international R&D of MNCs and home national environments concerning R&D
people are introduced to explain the differences of MNCs by region.

This paper is structured as follows. First, the theoretical background and previous studies
related to this paper are outlined. Second, the methods of this chapter are explained. Third,
the empirical results of the data analysis concerning the performance of sales and patent
creation in the US and organizational difference between Japanese and European firms are
presented. The fourth section provides environmental evidences that may be regarded as the
determinants of some of the organizational differences between Japanese and German firms.
Finally, the conclusion and limitations are discussed.

THEORETICAL
THEORETICAL BACKGROUND
Environments and Organizations

Environments where firms are located shape and constrain the organizations (Bartlett &
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Ghoshal, 1998; Porter, 1990). Researchers studying ‘national innovation system (NIS)’ argue
that national environments such as R&D organizations, government policy, education system,
industry-university relationship and financial system, facilitate and constrain the science and
technology activities within the systems (Edquist, 1997; Nelson, 1993). As the business
activities become increasingly global, how nation-state specific factors affect the managerial
practices has emerged as an important contingency (Lewin and Kim, 2004).

Kogut (1991) develops arguments for why different national trajectories arise and persist and
why institutional and organizational changes may be slower than technological changes. He
claims the required institutional and organizational change may be impossible to enforce due
to the unacceptable levels of changes in underlying principals for organizing work, of which
countries differ in their application (Kogut, 1991). Certain changes may be legally and
politically impossible in some countries and cultures. In the face of radical technological
change outside elsewhere in the world, high technology based MNCs may be locked-in their
home country environments and may not be able to force organizational changes (Narula,
2002).

The critical issue hitherto arises: How and to what extent do the environments constrain
organizational change in the era of radical technological change around the world? In the
other words, how and to what extent can firms leverage their own firm-specific capabilities to
resist the environmental pressures in the home and host countries and develop their own
R&D capabilities globally?

MNCs that straddle multiple institutions provide us with valuable examples to examine the
relationships between national environments and organizations. MNCs’ core capabilities are
strengthened by their home country environments (Porter, 1990). Yet, when they operate
abroad, they are required to adjust their organization to the surroundings in the host
countries. Some adjustments are possible to manage, but some may prove to be difficult or
impossible due to irresistible environmental pressures in the home country that constrain
MNCs. This paper deals with the fundamental issues concerning this interplay between the
national environments and organizations.

Absorptive Capacity

‘Absorptive capacity’ provides a useful perspective for an analysis of the capabilities of firms to
absorb technologies from external sources abroad. ‘Absorptive capacity’ is one of the most
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important constructs to emerge in organizational research over the past decades (Lane, Koka
and Pathak., 2002), and it has been explored and utilized by various researches in the past at
an individual level, at an organizational level or at a national level. According to Cohen and
Levinthal (1990), ‘absorptive capacity’ is the ability of a firm to recognize the value of new
external information, assimilate it, and apply it to commercial ends. This capacity is largely a
function of the firm’s level of prior related knowledge.

Employing the nation of ‘absorptive capacity’, this paper uses the term ‘absorptive capability
(AC)’ to refer to the capability of absorbing technological knowledge from the United States.
Established companies try to increase ‘absorptive capacity’ when facing the emergence of
technologies they lack internally. However, firms are constrained by their own internal and
external factors such as histories, paths, organizational structures, and shifting environments
in home and host countries. Nevertheless, some firms are capable of influencing environments
as well as changing organizations with strategies that reconcile internal and external factors
(Patel and Pavitt., 1991, 1997; Teece, Pisano and Shuen, 1997).

Absorptive Capability of MNCs

As to the issue of absorption of technological knowledge across national borders, some

researchers use patents or scientific papers to analyze it at a country and sector level
(Cantwell and Piscitello, 2000; Patel and Pavitt, 1997). Less research has, however, been done
at the level of the firm. Studies whose main focus is on international R&D management have
dealt more with issues of motivation, location choices and roles of subsidiaries. The research
on technology sourcing by MNCs has focus on the levels of subsidiary or firm (Almeida, 1996;
Frost, 2001). However, they barely touched on the transfer and combination of the sourced
knowledge within MNCs. Research on comparative management and international business
has tended to focuses on governance forms and task structure (Lam, 1997); knowledge
transfer within MNCs has become a subject of study only recently. Thus the organizational
and managerial implications of AC including internal knowledge combination and utilization
to managers of MNCs have hardly been investigated.

Arai and Barron (2005) argue that AC consists of four capabilities, acquisition, combinative,
independence and utilization capabilities (See Appendix 1 for the definition of each capability).
They found interrelations between them as shown in Figure 1 (Arai and Barron, 2005).
Interestingly, there is no significant correlation between acquisition capability (share of
patents relying on US knowledge) and utilization capability (proportion of sales of a firm in
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the US). Instead, the result shows a significant positive association of combinative capability
with utilization capability, which suggests the critical role of intensive collaboration in the
integration of home and US knowledge and in bringing about high economic performance in
the US market. In addition, the significant positive correlation of independence capability
with acquisition capability implies the importance of the autonomy of US subsidiaries in
improving the acquisition of US knowledge. Overall, the results suggest that both combinative
and independence capabilities are critical to AC and that there may be a mediating effect of
combinative capability and independence on the relationship between utilization capability
and acquisition capability (Figure 2).

-----------------------------------------------
Insert Figures 1 and 2 about here.
-----------------------------------------------

Arai (2006) further found that most of the organizational characteristics of MNCs associated
with combinative and independence capabilities contrast whereas some of those regarding
human resources at the corporate R&D centers have significant correlation with both
capabilities in the same directions. This implies that R&D people of a firm may play a critical
role directly and indirectly in the successful absorption of technological knowledge from
abroad. Given these results, this study aims to compare East Asian (mainly Japanese) and
European (mainly German) MNCs, paying particular attention to their degree of
internationalization, organizational differences affecting AC, and environmental effects on
these organizational differences.

METHODS

Research Setting

These hypotheses are tested in the context of the R&D activities of East Asian (Japanese and
Korean) and European (German, Swiss, Dutch, Swedish and Finnish) MNCs that carry out
R&D in the US as well as in their home countries. All the countries where the MNCs are
headquartered are members of the OECD and invest a high percentage of their GDP in R&D.
These countries share national borders or similar backgrounds culturally and historically. The
unit of analysis is the R&D organization of individual firms. The firms were selected from the
electronics, engineering, chemical and pharmaceutical industries. Firms in these industries
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have relatively high R&D intensity (R&D expenditure/sales).

Sample

After choosing the home countries of firms to be sampled, we identified the population of the
potential sample firms to be studied from the lists that ranked firms of each country or by
sector worldwide (e.g., OECD Outlooks, ‘Shushoku-shiki-hou WEB’, ‘Die Zeit’, ‘World
Investment Report 2002). Then we chose the firms with which we had prior contacts or
potential contacts through mediating people or organizations such as industrial organizations
and research institutes. These personal contacts and introduction by local networks were very
important because of the sensitivity of the subject of R&D activities. Then we made
exploratory semi-structured interviews.

After this process, we invited the selected firms to participate in a survey that included
interviews and questionnaires. More than 50 firms expressed initial interest and were visited
at least once to conduct structured interviews. Out of these firms, nearly 40 firms completed
the questionnaires at their headquarters or main corporate R&D centers in 2003 or 2004.
Patent information for these firms was collected through the European Patent Office (EPO).
To compare AC by region, 47 firms that we interviewed at least once and had patent data good
enough for comparative analysis are included (Table 1). For the analysis of the questionnaire
items that relate to human resources, 33 firms are included (Table 2). These 33 firms had both
reliable responses to the questionnaires and patent data. The firms analyzed in the human
resources questionnaire represent four nationalities: Japanese, German, Swiss and Dutch.

----------------------------------------------
Insert Tables 1 and 2 about here.
----------------------------------------------

Data

We use five sets of data: 1) responses to the questionnaires, 2) interviews, 3) public company
data regarding sales and R&D, 4) patent data, 5) government data at a country level. The
public company data were gathered from their special reports to the national authorities of
the stock markets or US authorities as well as from their annual reports. When these data
were not included in published reports, enquiries were made to each company directly.
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As regards interview information, we conducted extensive semi-structured interviews with

over 160 managers (1 to 8 people from each firm) in the Japanese and European firms in the
three regions, Japan, Europe and the US, from 2001 to 2002. The primary objective of the
interviews was to explore and understand the factors managers believed to be important
because the international R&D activities at a firm level with respect to organization and
management were still poorly understood. The exploratory interviews were followed by
conceptual ordering. As a result, five major organizational elements were elucidated: types of
R&D activities, decision making, external relationships, human resource, knowledge sharing,
control and coordination.

From the summer of 2003 to 2004, the questionnaire was administered to senior managers at
the corporate R&D centers in the home country. These managers were generally at the level of
reporting directly to the Chief Technology Officer (CTO) or his/her deputy. The constructs and
each question in the questionnaires were based upon the extensive prior interviews. The
questionnaires contain the five major elements of organizational characteristics identified
during the exploratory interviews. They cover not only R&D units, but also other functional
units. Some questions on organization were prepared to double check and confirm the validity
of the results from different aspects. Prior to the survey, the questionnaires were tested by a
few researchers and engineers in pharmaceutical and electronics industries we had a close
contact with.

Patent data are the main source of information used to track technological innovations in the
dispersed R&D locations of the Japanese and European MNCs in this study. The propensity to
patent differs across industries, however, and some firms are less interested in filing patents,
which makes it difficult to compare the success at developing inventions of firms by means of
patent data (von Hippel, 1994). Nevertheless, large MNCs, particularly those in the industries
we study, file patents vigorously enough for researchers to use patent data to analyze their
R&D activities (Patel & Pavitt, 1997).

We analyzed a total of 613,583 patents that were granted to the 47 companies (including
their consolidated subsidiaries) in the study. These were the patents filed between 1995 and
1999, either with the United States Patent and Trademark Office (USPTO), World
Intellectual Property Organization (WIPO), EPO or the national patent offices of the countries
where the firms’ headquarters are located. Because MNCs often subsequently file patents for
the same invention in several countries, we used only the first-filed patents in order to avoid
double or triple counting. These data were selected by the EPO, which has all the patent data
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filed in the patent offices listed above. The numbers of patents granted for the same number of
inventions differ in the patent systems of each region and country. Therefore, we scaled down
the number of Japanese and Korean patents by a factor of 4.9 to re-evaluate the volume of
inventions1.

We chose the patents whose priority date (i.e., the date a patent application was filed in
any country that has signed the Paris Convention) was between 1995 and 1999. These dates
were chosen primarily because of comparability of patent data as follows. The first reason is
the time lag between inventions and market performance. The average time lag varies across
sector. However, it takes at least three to four years according to the interviewees. Since the
sales were measured as of 2002, we decided to include patents first filed until the end of 1999.
Second, firms’ patent strategy had evolved since the early 1990s. German firms, in particular,
increased their patent filings despite the stable R&D expenditure during the same period.
Third, Japanese firms became more intensive in their internationalization in the 1990s, while
some companies, particularly in small countries, started to internationalize their R&D
activities much earlier (Kuemmerle, 1999). For the last two reasons, it was necessary to limit
data filed after 1995.

1 To deal with the problem of varying numbers of patents per invention, Eaton and
Kortum (1999) used a factor of 4.9 to scale down domestic patents in Japan based on the
analysis of Okada (1992). Using the data on the number of claims of inventions, Okada
finds that Japanese patents granted to foreigners contain on average 4.9 times as many
inventive claims as those granted to Japanese inventors, and others all have a similar
average number of claims per patent. In addition, according to the study of EPO, the
factor to scale down Japanese patents should be between 3 and 5. In addition, the
Korean patent system is very similar to the Japanese one due to their historical
assimilation of every Japanese policy, which was confirmed with the experts in the
patent issue. Hence it is assumed the Korean patents have a similar tendency to those
of the Japanese. Therefore I tested the factors of 3 and 4.9, and the principale results
were same.
Okada, Y. 1992. Tokkyo Seido no Ho to Keizaigaku (The Law and Economics of the
Patent System), Staff paper, Shinshu University. Shinshu. Eaton, J. & Kortum, S. 1999.
International Technology Diffusion: Theory and Measurement. International Economic
Review, 40(3): 537-570.
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STATISTICAL RESULTS

This section reports the statistical analyses of the patents, sales, and questionnaires, which
show the regional difference between Japanese and European (mainly German) MNCs.

Comparison of patents and sales between European and East Asian MNCs

This section presents the analyses of patent and sales of 47 MNCs. Table 3 shows the means of
key variables by region and industry. On average, compared in the same industries, European
MNCs have higher annual turnover, R&D expenditure and R&D intensity, and US market
share as a fraction of the total sales of a firm (USM) than their Japanese/Korean counterparts.
Their share of R&D staff in the US is also higher. USM and R&D intensity are slightly higher
for pharmaceutical and chemical industries in both regions, although turnover and R&D
expenditure are higher for electronics and automobile industries. The Japanese/Korean
electronics and automobile firms have a higher percentage of expatriates in their US R&D
centers on average.

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Insert Table 3 about here.
------------------------------------

To examine the statistical regional (East Asia and Europe) difference in the share of R&D
people in the home country as well as the capabilities comprising ACUS, USCC and USOL, we
used ordinary least square (OLS) analysis controlled by three variables: sector, R&D
expenditure (RDE) and R&D intensity (RDI). These variables were chosen as controls for the
following reasons. Researchers have recognized differences in AC by industry (Cantwell and
Piscitello, 2000; Patel and Pavitt, 1997). Therefore this study also uses industry
(electronics/automobiles vs. pharmaceuticals/chemicals) as a control variable. As for RDE,
firms need internal R&D capability to assimilate external R&D knowledge. Prior research
finds firms’ R&D investment increases acquisition of external technologies (Lim, 2004;
Rosenberg, 1990; Veugelers, 1997). Thus firms’ total RDE is expected to influence positively
the absorption of US knowledge.

In addition, the RDI of a firm is included to capture the differences in firms’ commitment to
developing their knowledge base. Applied economists believe there are three classes of
industry-level determinants of RDI: demand, appropriability and technological opportunity
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conditions (Cohen and Levinthal, 1989). Cohen and Levinthal (1990) used the same measure
as a proxy for a firm’s absorptive capacity. Thus including this measure enables us to better
assess the interrelationships between various capabilities being independent of the total AC.

Factor analysis, including the variables of the four capabilities as well as RDE, RDI, total
annual sales and total employees of a firm, tells us that RDE, total annual sales and total
employees, belong to one of three components whereas RDI is in another, and all the other
variables are in a third component. Thus by including RDE, the size of a firm in terms of total
annual sales and total employees is taken into consideration to some extent.

The result of the regression shows that the proportion of R&D people at corporate R&D
centers in the home country of all those in the world is significantly higher (at the 0.01 level)
for the Japanese MNCs (78.7% on average) than the Europeans (70.5% on average) (The
parameter estimate is 0.306 when Japan is 1 and Europe is 0.). The European firms have
much more globally dispersed R&D centers than the Japanese, which coincides with the
finding below that there are a significantly higher proportion of foreign nationalities and more
diverse inventors’ nationalities in the European firms’ patents.

With regard to the patent performance, the statistical results (OLS) show that the capabilities
comprising AC of the Japanese/Korean firms are significantly lower than that of the European
counterparts except for utilization capability (Table 4). Acquisition capability (at the 0.1 level),
combinative capability (at the 0.1 level) and independence capability (at the 0.01 level) of the
Japanese/Korean firms are all significantly lower than that of the European firms.

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Insert Table 4 about here.
------------------------------------

The difference in independence capability suggests that the European firms allow more
autonomy to their R&D subsidiaries in the US than the Japanese/Korean firms. This may be
at least partly explained by the difference in entry mode: the Europeans rely more on ‘M&A’ in
general than Japanese firms (Kuemmerle, 1999; Arai, 2006). Consequently US subsidiaries
are less integrated and more independent from the headquarters. Another reason may be that
Japanese/Korean firms are not usually engaged in the types of R&D that requires substantial
autonomy of US R&D people to explore new possibility by themselves.
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A previous study found that there is a significant positive correlation between combinative
capability and utilization capability when both European and Japanese /Korean firms are
included (Arai and Barron, 2005). However, it is not so when only Japanese/Korean firms are
examined. In addition, this study finds that Japanese/Korean firms have a significantly lower
level of combinative capability than Europeans. This means these East Asian firms can attain
a high share of sales in the US without combining home knowledge with that of the US.

This may imply that Japanese and Korean firms intentionally try to separate the home and
US R&D more than the European firms because their culture, languages, and ways of R&D
are more distant from those of the US. Japanese/Korean firms may make more effort to divide
the work into modules in order to share it between the home country and the US because it is
more difficult for Japanese/Korean firms to co-operate with the US people in the case for
European firms. In general, Asian firms have less R&D experience in the US than Europeans,
as we discuss later. Hence, they may not know how to integrate US and home country
knowledge. It is possible that they may become more like their European counterparts in
developing synergies between the home and US R&D people to increase US sales as they
accumulate experience in the future.

Zooming into the composition of acquisition capability (share of patents that have American
inventors of all the patents of a firm filed in any of the patent offices listed above), the
European firms have more diverse combination of US knowledge with that of other
nationalities than the Japanese/Korean firms as shown Fig. 3, 4, 5, and 6. The other
nationalities are mostly other Europeans.

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Insert Figures 3, 4, 5, and 6 about here.
-------------------------------------------------------

Whether the R&D network of European firms is truly integrated or not (Bergek and Berggren,
2004), this indicates more complex integration of knowledge of the European MNCs whose
subsidiaries in other European countries interact directly with US subsidiaries. On the other
hand, the R&D of their East Asian counterparts is more concentrated on the home country,
and their international R&D activities are primarily focused on the US. This is consistent
with the results of other researchers argued (von Zedtwitz and Gassmann, 2002). There seems
to exist a clear regional difference between European and East Asian firms not only in the
degree of acquisition of US knowledge, but also in the patterns of combination of inventors
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with various nationalities.

Comparison R&D People at the Corporate R&D Centers

between European and East Asian MNCs

This section presents the results of a questionnaire survey regarding R&D people at the
corporate R&D centers of 33 European (mainly German) and Japanese MNCs listed in Table 2.
In the questionnaires, respondents were asked to give the percentage of R&D people at
corporate R&D centers in the home country of all the R&D staff at corporate R&D centers in
the world. They were also asked the proportion of R&D staff with various attributes at
corporate R&D centers in the home country, such as ‘academic degrees’, ‘foreign citizenships’,
‘gender’, ‘postdoctoral experience’ and ‘working experience in other firms’ using 5-point Likert
scales.

We rely on the questionnaire survey to analyze the difference of R&D people’s attributes
between Japanese and European firms. For the dependent variables derived from the
questions based on Likert scales, ordinal logistic regression (sometimes known as the ordered
logit model) is used to obtain parameter estimates of an independent variable, region (Japan
and Europe). Although it is common practice to use OLS analysis with data of this type, it is
more appropriate to rely on ordinal logistic regression2.

The statistical results show that the European firms have a significantly higher proportion of
R&D staff with ‘foreign citizenship’, ‘foreign citizenship hired in the last three years’, ‘doctoral
degrees’, ‘foreign degrees’ and ‘postdoctoral experience’ than the Japanese (Table 5). There is
no significant regional difference in ‘gender’ and ‘staff hired in the last three years without
working experience’.

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Insert Table 5 about here.
------------------------------------

2 It is more appropriate to rely on ordinal logistic regression for a number of reasons.

First, the OLS method involves the assumption that the dependent variable has a
normal distribution, but this clearly cannot be the case when the variable is ordinal.
Therefore OLS will not be an efficient estimator. Second, OLS may produce predicted
values that are beyond the actual range of the scale (that is, less than 1 or greater than
5). We obtained the estimates by using maximum likelihood estimation as implemented
by SPSS.
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As explained above, the previous study revealed that, while most of the organizational
characteristics other than human resources have contrasting associations with combinative
and independence capabilities, several attributes of human resources such as ‘foreign
citizenship’ and ‘post-doctoral experiences’ at the corporate R&D centers in the home country
have significant associations with the two capabilities in the same directions: The
characteristics of ‘foreign citizenship’, ‘foreign citizenship hired in the last three years’, and
‘doctoral degrees’ have a significant positive association with one of the two capabilities
whereas the characteristics of ‘gender’ and ‘new graduates without working experiences’ have
no significant correlation with any of the capabilities (Arai, 2006).

Therefore, the findings of this study concerning the regional difference (in ‘foreign citizenship’,
‘foreign citizenship hired in the last three years’, ‘doctoral degrees’, ‘foreign degrees’ and
‘postdoctoral experience’) suggest the European firms have more R&D people with attributes
that can directly or indirectly contribute to enhancing AC than Japanese firms. These results
raise the question of why there are such differences between European and Japanese firms?
The next section deals with this question.

NATONAL ENVIRONMENTS IN THE US, GERMANY AND JAPAN

This section aims to explain how the experience of international R&D of MNCs and the
historical background and national environments in the US, Germany and Japan may have
influenced the regional difference in the degree of international R&D and characteristics of
R&D staff of European and Japanese MNCs, which are identified above. The following
sections aim to explain the national environments in each country.

GDP, Population and Industry

With regard to the size of each country, The GDPs (Gross Domestic Products) of the US,
Germany and Japan are 5563, 1967 and 3885 (constant 1995) US billion dollars respectively.
The populations are 28.5 (US), 8.2 (Germany), and 12.7 (Japan) million. The GDP per capita is
largest in Japan, 44,457(constant 1995 US billion dollars), followed by Germany (32,813) and
the US (31,592). As for the industrial structure of the three countries in terms of the GDP and
employment, the second industry is more prominent in Germany (GDP, 31.9%; employment,
34.3%) and Japan (GDP, 37.1 %; employment, 33.0%) than in the US (GDP, 25.2%;
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employment, 24.2%). The US, on the other hand, has the largest shares of the GDP and
employment in the third industry. The share of manufacturing sector in GDP is very similar
between Germany (GDP, 23.6%) and Japan (GDP, 24.3%), and it is much higher than in the
US (GDP, 17.0%). These indicate that the industrial structures, at least with respect to the
second industry and manufacturing sector, in Japan and Germany are more similar to each
other than that of the US.

Experiences of International R&D

History and recent changes of international

international R&D. Internationalization of science and
technology dates back to ancient times. We find evidence of inter-relationships among
civilizations from the era of the four great civilizations in the world. The transfer of industry
related to knowledge was observed before and after the first industrial revolution in Europe in
the eighteenth century. In the past few centuries, the technological hegemony has moved from
country through country in Europe and the US (Yakushiji, 1989). The flow of scientific and
technological knowledge between countries has become more and more intensive as the
number of industrialized states has increased. Whenever a country began to industrialize and
to emerge as a significant economic power, they imitated, exploited, and accumulated the
knowledge of leaders in a variety of ways.

The internationalization of R&D has become increasingly significant in the past few decades,
particularly in response to the rapid rise of new technologies. Large incumbent firms are
incrementally shifting and expanding their competence through collaboration with other high
technology based firms and universities, including those based overseas. They do not
necessarily just expand their expertise in their own central laboratories as they did before.
This is in part because it is difficult or expensive for firms to enhance their in-house
capabilities rapidly in new areas of research. It is also because they want to wait and see the
progress and profitability of new technologies in light of their business during the initial
trial-and-error or pre-paradigmatic period. A rapidly growing number of R&D related
alliances, mergers, joint ventures, and strategic partnerships on a global scale as well as of
foreign direct investment in R&D have been observed especially in the 1980s and 1990s. The
literature shows that these are heavily concentrated in the triad: the US, Japan and a few
countries in Europe (Edler, Meyer-Krahmer, and Reger, 2001)

Organizational forms. At the level of the firm, as Gerybadze and Reger (1999) suggest, in
the process of internationalization of R&D, the change of management has resulted in new
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organizational forms, stronger cross-functional integration, and boundary-spanning

innovation processes. Past studies have developed various taxonomies for international R&D
units, such as ethnocentric centralized R&D, geocentric centralized R&D, polycentric
decentralized R&D, R&D hub model, integrated R&D though they have not achieved to show
a comprehensive model for organizational change in R&D organizations (Gassman and von
Zedtwitz, 1999). These studies have been particularly weak in assessing whether there is any
association between types of organizations and performance.

With regard to regional differences in the organization of the global R&D units of MNCs,
researchers have usually categorized most European large MNCs into a decentralized model
and most Japanese large MNCs into a decentralized model (e.g. Gassman and von Zedtwitz,
1999, 2000; Gerybadze and Reger, 1999). They argue most Japanese firms have not yet
developed an organizational capability suitable for managing international R&D to utilize
globally dispersed knowledge (Gassman and von Zedtwitz, 1999, 2000; Gerybadze and Reger,
1999).

Foreign direct investment (FDI) in R&D. With regard to outward R&D investment, US
firms are pioneer investors in R&D facilities abroad, while European firms’ investment
reached US levels in the late 1970s. Since the late 1980s, Japanese firms have increased their
overseas R&D activities (Jungmittag, Meyer-Krahmer and Reger, 1999). The United States is
a significant recipient country for foreign R&D expenditure (Jungmittag, Meyer-Krahmer and
Reger, 1999). Many industrialized countries, including Japan and Germany, extended their
R&D activities in the 1990s (Science and Engineering Indicators, 2004). According to
Jungmittag, Meyer-Krahmer and Reger (1999), the great increase of German firms’ R&D
expenditure from 1994 to 1995 is primarily explained by the boom in acquisitions, particularly
in the pharmaceutical industry.

Regional comparison shows that European firms’ R&D investment in the US is much greater
than that of Japanese (Figure 7). Taking into account the size of the countries (Table 6),
Germany has a higher proportion of their R&D investment in the US than Japan. Moreover,
firms from smaller countries such as Switzerland and the Netherlands have a much higher
proportion of their R&D investment in the US than their European counterparts in Germany.

--------------------------------------------
Insert Tables 6 and 7 about here.
--------------------------------------------
 16/16

-------------------------------------
Insert Figure 7 about here.
-------------------------------------

The data on the inward R&D investment, on the other hand, shows that the proportions of
investment by foreign firms in the US, Germany and Sweden are almost equivalent (US,
15.3%; Germany, 15.9%; Sweden, 14.0%) while it is only 5.2% in Japan and is as high as 25.8%
in the UK and 67.0% in Ireland (Jungmittag, Meyer-Krahmer and Reger, 1999). Jungmittag,
Meyer-Krahmer and Reger (1999) argue that the share of foreign R&D is especially high in
those countries in which foreign enterprises are strongly represented in manufacturing
industry. Japan and Germany have a similar share of manufacturing industry in their GDP
and employment (Table 7), so the difference of inward FDI in R&D is not probably due to this
bias.

Inventors of Patents. The analysis of inventors’ addresses, shown on patents, allows us to

investigate the location of sources of knowledge that firms acquire. A t a country and sector
level, a number of researchers reported a large difference in the degree of acquisition of
foreign knowledge by firms (e.g., Cantwell and P; Criscuolo, 2004; Gambardella, Orsenigo and
Pammolli, 2000). Criscuolo, (2004), for example, shows the varying degrees of
internationalization of R&D by region and sector from the patent data of firms listed in the
Fortune 500 (Table 8).

-------------------------------------
Insert Table 8 about here.
-------------------------------------

Generally speaking, Japanese firms have a far higher proportion of inventors in the home
country compared to European counterparts. The average percentage of US inventors of
European pharmaceutical companies is 38.7%. However, that of firms in the automobile
industry is small (Europe, 5.5%; Japan 0.80%) compared with compared with other high
technology industries. This suggests that European and Japanese automobile firms still rely
primarily on technological competence in their home country, which is more advanced than
that in the US.

For a specific case of MNCs engaged in biotechnology, Gambardella, Orsenigo and Pammolli
 17/17

(2000) report that several British and Swiss firms have most aggressively exploited
biotechnology in the US. On the other hand, German, French and Italian firms appear to be
slower, and Japanese firms lag far behind. Large Japanese pharmaceutical companies have
been particularly slow to embrace the new technologies. Interestingly, the most substantial
investment of Japanese firms in biotechnology has been made by firms with historical
strengths in fermentation-based industries (Henderson, Orsenigo, and Pisano, 1999). Out of
the top 30 companies world-wide, Swiss firms account for 49.7% of patents with US inventors
that were filed in the US, while the share is lower for British (21.3%), German (17.8%), and
Japanese firms (1.9%), although there is a bias from the number of firms included in the
sample and country size (Gambardella, Orsenigo and Pammolli, 2000).

Human Resources for R&D Activities

R&D people with doctoral degrees The number of people with doctoral degrees may be one
of the critical factors that sustain high levels of R&D activity in high technology based
industries. This may be particularly important in rapidly changing technological fields that
require strong linkage with basic science. The statistical results of the questionnaires and
patent analysis show the percentage of doctorates among R&D people at corporate R&D
centers in the home country has a significant positive association with independence
capability (Arai, 2006). They also show the percentage of people with postdoctoral experience
at corporate R&D centers in the home country has a significant positive association with both
independence and combinative capabilities (Arai, 2006). Thus a shortage of qualified R&D
people with advanced degrees may limit the acquisition of technological knowledge from
abroad as well as R&D activities of high tech firms in the home country.

The numbers of doctoral degrees obtained by field vary across the US, Germany and Japan as
shown in Table 9. In natural science, Germany has the largest number of doctoral degree
obtained per 10,000 (0.726) in 2001, which is followed by the US (0.312) and Japan (0.125). In
the field of biology, Germany also has the greatest number of doctoral degree obtained among
the three countries, but the number in Germany fluctuated in the 1990s while the US and
Japan have increased the numbers steadily during the same period (Table 10). These suggest
that the national environment in Germany is more favorable for MNCs to recruit new
qualified graduates than in Japan.

---------------------------------------------------------
Insert Tables 9 and Table 10 about here.
 18/18

---------------------------------------------------------

Foreign students and researchers in the home country and the US. Foreign students in the
home country of MNCs are sources of new foreign employees for firms. The empirical results
show the proportion of R&D staff with ‘foreign citizenship’ has a significant positive
correlation with combinative capability, and the proportion of those with ‘foreign degree’ has a
significant positive correlation with both combinative and independence capabilities. A large
number of foreign students in the home country can increase the possibility of hiring foreign
R&D staff and indirectly enhance firms’ AC. The proportions of foreign students in higher
education in the three countries vary substantially: US (3.5%), Germany (9.6%) and Japan
(1.6%). With respect to the foreign students in the US, the proportion of foreign students at
the top universities such as Stanford University, Harvard University, and MIT by home
country is consistent with the national average (Appendix 2).

The majority of foreign students in Germany are from Turkey or other European countries,
while those in the US and Japan are mostly Asian3. The national backgrounds of foreign
students may be similar in Japan and the US, but the quality and rate of stay after
graduation of those students may differ between the two countries according to several
informants at the Ministry of Education, Culture, Sport, Science and Technology, Japan
(MEXT) and at Japanese universities. An official at the MEXT informed:

The national goal of receiving 100,000 overseas students has been achieved since a few years
ago. Now it is time to focus more on the quality of the students rather than quantity. We want
more students from Asia with high academic quality, but we hear the best students tend to go
to the United States. The students prefer American universities because of the language,
future job opportunity, and conditions at universities. It is often complained that the Japanese
universities are less open than American universities and are not well prepared to educate
international students.

The result of the survey of the MEXT to higher education institutions shows there are only
103 foreign graduate students in Japan who had an internship experience in the fiscal year
2004, while in the US and Europe internship for graduate students is much more common.

3 Share of foreign students in each country as of 1998: US, 3.5% (China, 9.8%; Japan,
9.8%; Korea, 8.9%; India, 7.0%; Canada, 4.6%); Germany, 9.6% (Turkey, 15.7%; Iran,
5.2%; Greece, 5.0%; Austria, 4.0%; Italy, 4.0%; Poland, 4.0%); Japan, 1.6% (China, 45.6%,
Korea, 33.0%, Malaysia, 3.7%) (Source: ‘International Mobility of the Highly Skilled’,
OECD, 2001)
 19/19

This indicates that it is more difficult for foreign students to find a job in Japan than in
Europe even if they wanted. In addition, Japanese managers said Japanese firms were very
reluctant to hire foreign researchers and engineers because foreign employees tended to leave
their firms and go back home before long.

There are more Japanese graduate students in US universities than Germans (OECD
Education database). This indicates that Japanese MNCs in the US are more likely to be able
to hire new staff with US academic degrees. However, the number of foreign-born US
researchers with science and engineering doctorates born in Japan is smaller than that of
Germany (Table 11). This may be partly because the number of Japanese students has
increased relatively recently compared with that of Germans. It may be also because German
R&D people are more likely to stay in the US after graduating from the US universities or
there may be more German immigrants with doctoral degrees into the US than Japanese.

--------------------------------------
Insert Table 11 about here.
-------------------------------------

The R&D staff that can understand practices both in the US and home country may improve
the connectivity and facilitate communication and understanding between the headquarters
and subsidiaries. The larger number of German researchers in the US than Japanese may
suggest that R&D subsidiaries of German MNCs have a greater advantage over their
Japanese counterparts because there are more German R&D people who can be hired locally
in the US.

International scientific collaboration. International collaboration in the area of basic

science among researchers can provide a basis for international R&D activities of MNCs. For
example, it promotes the networking among scientists across national boundaries, which gives
firms valuable formal and informal information and contacts of other countries; contributes to
harmonizing research terms and methods; and, very importantly, helps educate and train
internationally competitive new graduates.

The proportions of internationally coauthored articles differ among countries: US (23.2%),

Germany (41.2%), and Japan (19.7%) (Table 12). From 1994 to 2001, the shares have
increased for all the three countries: US (7.4%), Germany (11.1%), and Japan (6.0%). German
authors have the greatest proportion, but the percentage of articles coauthored with US
 20/20

researchers is smaller (29.9%) than that of Japan (42.8%). Between 1994 and 2001, Japanese
coauthored articles with US people grew from 19.7% to 42.8% while the share of German-US
coauthored articles remained almost same.

--------------------------------------
Insert Table 12 about here.
-------------------------------------

This is because German researchers collaborate extensively with researchers in other

European countries. Thus the share of coauthored articles by region is consistent with the
results that European MNCs have much more extensive R&D network in other European
countries than Japanese. It is probable that the strong science base interweaving multiple
European countries contributes to the internationalization of R&D activities of European
MNCs.

CONCLUSION

Prior research has suggested that the difference in the degree of internationalization of R&D
reflects the technological capability and size of home and host countries (Gerybadze and Reger,
1999; Criscuolo, 2004). This study further investigates: (1) How components of AC differ by
region by looking into inventors’ addresses; (2) How organization of MNCs concerning R&D
people differ by region; (3) How national environments besides the technological capability
and size of home and host countries may hinder MNCs from transforming their organizational
characteristics mainly with respect to R&D people. Specifically, we looked into three
environmental factors: (1) qualified R&D people (doctoral candidates and foreign students in
universities) in each country; (2) availability of researchers with doctoral degrees who were
born in the home country of MNCs and work in the US; and (3) international collaboration in
the field of basic science.

The investigation of national environments indicates Japanese firms are more disadvantaged.
First, there are fewer qualified researchers with doctoral degrees and foreign researchers who
have studied in Japan than in Germany. Second, there are fewer researchers with doctoral
degrees who were born in Japan and work in the United States than those born in Germany.
With regard to the international collaboration in the field of basic science, Japanese
researchers have substantial linkage with US researchers, but the cooperation is heavily
 21/21

concentrated on the US. This suggests Japanese MNCs may face difficulty in diversifying
their R&D activities in other countries besides the US.

Since these environmental factors are usually beyond control of MNCs, it provides an
important implication to the policy makers, especially those responsible for higher education.
It may be more necessary for governments to encourage scientific collaboration with other
nations as well as to increase graduates with doctoral degrees and foreign students in certain
fields of technologies. It should allow MNCs to hire these R&D staff am improve their
capability not only to develop technologies in the home country, but to absorb technological
knowledge from abroad.

The major limitations of this paper are as follows. First, the relatively small sample lowers the
power to investigate inter-correlations between some of the variables. In addition, for more
accurate analyses, it may be necessary to analyze the data controlled by technology and
country although it is controlled by industry and region in this study. The products that utilize
the patent inventions vary from technology to technology as well as the period from R&D
investment to inventions. It will require a much larger patent data set and sample size, which
we did not have for this study as firms that can afford to establish corporate R&D centers in
the US are very much limited. The results are, however, significant for some variables and
allowed us to test the hypotheses.

The second limitation is the time lag between the questionnaires conducted in 2002 and
patent filed in 1995-1999 though some questionnaires asked about the situation in 1997.
Organizational characteristics in the late 1990s may have evolved toward 2002. Therefore, the
statistical correlations between the two data may have some bias because of the time
difference. However, common characteristics seem to persist for a very long time in
organizations, particularly laboratories, as interviewees acknowledged. Hence this problem
may not be as serious as other types of time lag.

The third limitation is that questionnaires were made to corporate R&D centers whereas
patent data were based on those filed by the whole company. Therefore, we need to be careful
in interpreting the results for this reason. Third, the interpretations of the meanings of
questionnaire answers had to rely mainly on the information from the managers because of
few empirical studies as this type. Although I used multiple answers and consulted multiple
informants to prove each organizational attribute of the four capabilities, there may be bias
from the informants due to the lack of the existing research.
 22/22

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TABLE 1
Companies in sample

Country Electronics/Engineering Automotive Pharmaceuticals Chemicals Total

Japan Canon, Epson, Fujitsu, Honda, Nissan, Toyota (3) Eisai, Fujisawa, Hitachi 25

Fuji-Xerox, Hitachi, Takeda, Yamanouchi Chemicals,

Mitsubishi Electric, NEC, NTT (4) Mitsubishi

DoCoMo, OKI, OMRON, Chemicals,

Matsushita Electric Industrial, Sumitomo

Sharp, Sony, Sumitomo Electric Chemicals (3)

Industries, Toshiba (15)

Korea Samsung, LG (2) 2

Germany Bosch, Infineon, Siemens (3) BMW, DaimlerChrysler, Bayer, Bayer, BASF, 13

Volkswagen (3) Boehringer-ingelheim, Degussa,

Merck, Schering (4) Merck (4)

Switzerland ABB (1) Roche, Novartis (2) 3

Netherlands Philips (1) 1

Finland Nokia (1) 1

Sweden Ericsson (1) 1

Total 24 6 10 7 47

TABLE 2
Companies in sample

Country Electronics/Engineering Automotive Pharmaceuticals Chemicals Total

Japan Canon, Epson, Fujitsu, Honda, Toyota (2) Eisai, Fujisawa, Hitachi Chemicals, 18

Mitsubishi Electric, NTT Takeda, Mitsubishi

DoCoMo, Matsushita Electric Yamanouchi (4) Chemicals,

Industrial, Sharp, Sony, Sumitomo

Sumitomo Electric Industries (9) Chemicals (3)

Germany Bosch, Infineon, Siemens (3) BMW, DaimlerChrysler Bayer, Merck, Bayer, Degussa, 11

(2) Schering (3) Merck (3)

Switzerland ABB (1) Roche, Novartis (2) 3

Netherlands Philips (1) 1

Total 14 4 9 6 33
 26/26

TABLE 3
Means by Region and Industry

Industry Turnover Sales in US Employees RDE (R&D RDI

(Number of sample firms) (US$ million) (US$ million) expenditure) (R&D

(US$ million) intensity)

Asia Electronics & Automobile (16) 37827.3 9504.2 112083.1 2015.9 0.055

Chemicals& Pharmaceuticals (7) 6715.4 1007.9 17137.3 569.5 0.100

Europe Electronics & Automobile (6) 47075.0 10697.2 176318.9 3003.4 0.092
Chemicals& Pharmaceuticals (7) 13453.4 4357.4 56984.4 1374.8 0.115
All 30892.8 7397.6 104347.2 1874.2 0.082

Industry USM (%) ACUS USCC USOL USR USE

(Number of sample firms) (%) (%)

Japan Electronics & Automobile (16) 19.4 0.028 0.003 0.024 4.6 19.3

Chemicals& Pharmaceuticals (7) 19.1 0.066 0.017 0.041 4.7 5.9

Europe Electronics & Automobile (6) 22.9 0.157 0.017 0.098 9.0 6.8

Chemicals& Pharmaceuticals (7) 31.1 0.779 0.049 0.237 16.1 6.4

All 22.6 0.221 0.018 0.088 8.1 12.6

Sources: company reports (Turnover, sales in US, employees, RDE and RDI) and survey to individual firms (USR
and USE). Turnover, sales in US, employees, RDE and RDI are based on the consolidated data as of 2002.
USR: Share of R&D people if a firm in corporate R&D centers in US
USE: Share of expatiates from the home country in corporate R&D centers in US
 27/27

Table 4
Parameter estimates capabilities comprising AC (Japan = 1, Europe = 0)
Region (Japan = 1, Europe = 0)
-.350*
Acquisition capability (ACUS) (.177)
.407
-.021*
Combinative capability (USCC) (.010)
.381
-.123***
Independence capability (USOL) (.041)
.510
-.013
Utilization capability (USM) (.044)
.336
First row is unstandardized coefficient; Second row is standard error;
Third row is R square.
* P< .1;
** P< .05
*** P< .01
 28/28

Table 5
Parameter estimates for share of R&D people (Japan = 1, Europe = 0)
Region (Japan = 1, Europe = 0)
-1.649***
Foreign (.566)
.377
-2.295***
Foreign hired in the last three years (.599)
.525
0.189
Female (.304)
.490
0.463
New staff without working experience (.569)
.070
-1.647***
Foreign degree (.568)
.410
-2.380***
Postdoctoral experience (.584)
.588
-1.826***
Doctoral degree (.547)
.560
First row is unstandardized coefficient; Second row is standard error;
Third row is R square.
* P< .1
** P< .05
*** P< .01
 29/29

Table 6
General statistics of the US, Germany and Japan

US Germany Japan
GDP 5563 1967 3885
GDP per capita 31592 32813 44457
Population (1000) 284822 82340 127291
Tota
Total employment (1000) 149298 38911 66222
Total researchers 1261227 264384 675898

Source: OECD MSTI

Note: As of 2001
GDP and GDP per capita are constant1995 US$ billion
 30/30

Table 7
Share of GDP and Employment by Industry

US Germany Japan
GDP
First industry 1.6 1.1 1.7
Second industry 25.2 31.9 37.1
(Manufacturing) (17.0) (23.6) (24.3)
Third industry 73.9 60.9 63.1

Employment
First industry 2.7 2.9 5.3
Second industry 24.2 34.3 33.0
(Manufacturing) (16.1) (23.7) (22.0)
Third industry 73.1 62.7 61.1
Source: ‘Doitsu Touitsugo no 10 Nen (Germany, 10 years after the Unification)’
(2003)
As of 1997

Table 8

1989--2000.
Share of patenting activities at home and in the US using USPTO granted 1989
At home In the US

Sector EU MNCs JPN MNCs EU MNCs JPN MNCs

Chemicals 63.40% 98.40% 23.90% 1.30%

Electrical & electronics 52.60% 94.40% 23.10% 4.30%

Motor vehicles 89.70% 99.00% 5.50% 0.80%

Pharmaceuticals 36.40% - 38.70% -

Source: Criscuolo, 2004

84 European and Japanese MNCs listed in the Fortune 500.
 31/31

Table 9
Number of Doctoral Degree Obtained by Field
Field

US Germany Japan
Number of doctoral degree obtained by field
Natural science 9816 5974 1586
Math/com science 1832 956 NA
Agricultural science NA 472 1241
Engineering 5502 2220 3864
Number of doctoral degree obtained by field per 10,000
Natural science 0.344 0.726 0.125
Math/com science 0.064 0.116 NA
Agricultural science NA 0.057 0.098
Engineering 0.193 0.270 0.312
Source: NSF ‘Science and Engineering Indicators 2004’
Note: Japanese data include thesis doctorates
Note: As of 2001

Table 10
10
Number of Doctoral Degree Obtained in Biology

US Germany Japan
Number of doctoral degree obtained in biology
1990 4328 3054 301
1995 5376 3501 384
2000 5855 2737 560

Number of doctoral degree obtained in biology per 10,000

1990 0.173 0.384 0.025
1995 0.205 0.429 0.031
2000 0.208 0.333 0.044
Source: Japanese and US data from ‘Science Based industries’; German data from
German Ministry of Education and Research
Note: Japanese data include thesis doctorates
 32/32

Table 11
Foreign-
Foreign-born US residents with S&E doctorates, by place of birth

Number of
Residents
China 37,900
India 30,100
United Kingdom 13,100
Taiwan 10,900
Canada 8,400
Germany 7,200
Iran 4,800
Former Soviet Union 4,600
Korea 4,500
Philippines 3,400
Poland 3,200
Japan 2,800
Argentina 2,700
Other foreign born 58,400
Source: NSF ‘Science and Engineering Indicators 2004’
Note: Japanese data include thesis doctorates
Note: As of 2001

Table 12
Foreign-
Foreign-born US residents with S&E doctorates by place of birth

Internationally US share of internationally

Coauthored articles Coauthored articles
Year 1994 2001 1994 2001
US 15.8 23.2 NA NA
Germany 30.6 41.7 30.2 29.9
Japan 13.7 19.7 19.7 42.8
Source: NSF 'Science and Engineering Indicators - 2004' Appendix table 5-44
Note: As of 2001
 33/33

Figure 1

5.927* 1.352*

Acquisition capability Combinative capability Utilization capability

.004
3.835***

.042

.027

Independence capability

Figure 2

Combination Independence

Acquisition of Utilization of
US technology US technology
 34/34

Figure 3 Japanese/Korean Engineering/Electronics/Automobile

Autonomy

0.024 (85.7%)

US HOME
OTHER
0.028 (100%)

Combination Combination

0.001 (3.6%) 0.003 (10.7%)

Share of patents concerned in all (share of combination and autonomy in ACUS)

Figure 4 European Engineering/Electronics/Automobile

Autonomy

0.098 (62.4%)

US HOME
OTHER
0.157 (100%)

Combination Combination

0.042 (26.8%) 0.017 (10.8%)

Share of patents concerned in all (share of combination and autonomy in ACUS)

 35/35

Figure 5 Japanese and Korean Pharmaceuticals

harmaceuticals and Chemicals

Autonomy

0.041 (62.1%)

US HOME
OTHER
0.066 (100%)

Combination Combination

0.008 (12.1%) 0.017 (25.8%)

Share of patents concerned in all (share of combination and autonomy in ACUS)

Figure 6 European Pharmaceuticals and Chemicals

Autonomy

0.237 (30.4%)

US HOME
OTHER
0.779 (100%)

Combination Combination

0.493 (63.3%) 0.049 (6.3%)

Share of patents concerned in all (share of combination and autonomy in ACUS)

 36/36

Figure 7 Foreign Direct Investment in R&D in the US

Germany

Japan
Sweden 18585 26359
2202

7626

4355 12562

US
16655
2649

1336

Switzerland 6339
Netherlands

Source: NSF ‘Science and Engineering Indicators - 2004’

Note: Sum of expenditure from 1995 to 2000. Millions of current US$
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APPENDIX 1 Definitions and Measures of Constructs

Key constructs Definitions Measures

Acquisition capability Capability of a firm to acquire US (Number of patents to which US

(ACUS) knowledge in the US people contributed) / (Total number of
patents granted to firm)

combinative capability Capability of a foreign firm to combine (Number of patents to which US and
(USCC) US knowledge with their home country home people together contributed) /

knowledge (Total number of patents granted to

firm)

Independence capability The degree of autonomy of a US (Number of patents to which only US

(USOL) subsidiary to invent in the US people contributed) / (Total number of

independently from the headquarters patents granted to firm)

Utilization capability US market sales as a fraction of the total (US market sales of a firm) / (total

(USM) sales of a firm market sales of a firm)

Size of R&D (RDE) Total R&D expenditure of a firm Total R&D expenditure (US$)

R&D intensity (RDI) Ratio of R&D expenditure to sales (Total R&D expenditure)/(Total sales)

* Patents are those first filed between 1995 and 1999 and granted at WIPO, EPO, USPTO, or national
patent offices where parent firms are located.

* Patents granted at Japanese Patent Office are reduced by a factor of 4.9.

* Turnover, R&D expenditure, number of people are as of 2002
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APPENDIX 2 Definitions and Measures

Measures of Constructs

Stanford Unviersity: by country (number of students), Autumn 2002

Total (graduate and undergraduate) Undergraduates Graduates
1. China (553) 1. Singapore (57) 1. China (407)
2. Republic of Korea (379) 2. Canada (42) 2. India (319)
3. India (375) 3. India (20) 3. Republic of Korea (316)
4. Canada (294) 4. Republic of Korea (19) 4. Canada (204)
5. Japan (186) 5. China (11) 5. Taiwan (102)
6. Germany (166) 6. Malaysia (9) 6: France (89)
7. Singapore (140) 6. Brazil (9) 7. Japan (84)
8. Taiwan (136) 6. Germany (9) 8. Turkey (83)
8. France (136) 6. UK (9) 9. Singapore (77)
10. Thurley (95) 10. Hong Kong (8) 10. Mexico (56)
11. Mexico (73) 10. Pakistan (8) 11. Germany (48)
12. Israel (66) 10. Philippines (8) 12. Hong Kong (47)
13. Italy (63) 10. Mexico(8) 13. Iran (40)
14. Hong Kong (59) 10. Bulgaria (8) 14. Israel (40)
15. Tailand (47) 15. Japan (7) 15. Tailand (38)
15. UK (38)
Source: Stanford University. Own calculation.
Note: As of 2002