Catching up and asset-seeking FDI: Outbound FDI by developing country firms as a means to access more advanced systems of innovation

Helena Barnard

Goal of PresentationEarly in research processFeedback on methodological issues:

Problem adequately conceptualized?Sub-problems comprehensively identified?Methods suggested for study of sub-problems a) appropriate and b) workable?Choice of firms for second industry

LARGE scope – need for balance between:Workable, in terms of both time investment needed and presentation of resultsComprehensive, i.e. addressing research issue and making best use of current well-resourced context

FDI as Means of Connecting Systems of Innovation

Industry organizations

Suppliers & sub-

contractors

Universities

Competitors

developing country multinational

subsidiary

Advanced system of innovation

Industry organizations

Suppliers & sub-contractors

Universities

Competitors

Developing country

multinationalparent

Intermediate system of innovation

Outbound FDI by developing country firm as a way of linking with more

advanced system of innovation

Summary of Argument Given the difference between less and more developed systems of innovation Outbound FDI to more developed countries will benefit home countries if:

Developing country MNCs do create new knowledge through interaction with more advanced systems of innovationDeveloping country MNC subsidiaries from more advanced contexts successfully share new knowledge with parent in less developed countryDeveloping country MNC parent disseminates new knowledge to other actors in the less mature system of innovation

Methodological Concerns

Resource-based industryOften associated with developing countriesMore likely ownership advantage to allow survival in more developed contextsOlder, therefore more likely to have some kind of institutional infrastructure

High technology industryAgreement that knowledge is central to the industryYounger firms more likely to have knowledge-seeking as goalStrongly associated with economic growthNeed to develop supportive infrastructure

Multiple countries examined to increase generalizability

“Control” for likely differences between different industries

Mining as Resource-Based Industry

Technology relevant for extraction (e.g. the “unmanned mine”) and prospectingTypical FDI pattern is to other countries at similar or lower level of development in the same region, e.g. Brazilian mining firm investing in Chilean mines Three firms from three less developed countries invest in a total of five more developed countries:

Anglo-American (South Africa) in Canada and AustraliaGrupo Mexico (Mexico) in USACVRD (Brazil) in Norway and France

High Technology Firms: ?Looking for:

Same three home countries as for mining (Brazil, Mexico, SA)Firms all in same industryFirms large enough to form “global network”

No easily defined “giants” in high technology industries - to be expected, given lower level of development of system of innovationAreas of high technology expertise typically due to military-related state spending, e.g. both SA and Brazil have nuclear, aircraft and petrochemical strengths - but not strong commercial successes

Information Technology Industry

High technology industry of the new technological paradigmA country like India provides evidence that developing countries can successfully enter the fieldFirms:

Information Technology service firm Dimension Data (South Africa) with “centres of excellence” in Australia, Belgium, UK, and SABrazil and Mexico – ?

Data Needed to Support Argument

Differences between systems of innovation – collect pre-existing dataHow new capabilities are developed and shared – gather data:

Mainly from firms themselvesAlso from other actors in systems of innovationUsing both interview and survey data

Differences in Systems of InnovationAnalyze home countries and all more developed countries where focal firms operateCompare more and less developed countries

Mining: Brazil, SA and Mexico compared to Australia, Canada, France, Norway and USInformation technology: TBD

Do general as well as industry-specific comparison of systems of innovationIn case of specific analysis, each industry done separately, comparing more and less advanced Mainly existing data sources, e.g. UNHDI, patent data, exports

General Comparison between Systems of Innovation

Measures:GDP per capitaGovernment and private R&D spendingEducation enrollments at primary, secondary and tertiary levels, specifically for technical fields Manufactured exports, divided by low, medium and high technologyPatent activity Scientific production

Industry-Specific Comparison Between Systems of Innovation

Cross-country comparison of knowledge-creating institutional infrastructureEducation and training

Basic training, e.g. trade schoolsAdvanced training, e.g. degrees offered

Research institutionsResearch linked to tertiary institutionsOther state or para-statal institutionsOther, e.g. industry consortia

Other Industry Actors in Systems of Innovation

For focal firms’ home as well as host countries:Lobbying institutions (employer and worker organisations)Competitors, i.e. other firms in same industryMain supplier firms Subsidiaries in same location, i.e. where horizontal or vertical integrationMain customers or customer groups

The role of these actors will be considered in greater depth in the later sectionsData both archival and obtained through firm interviews and surveys

Does FDI to More Developed Countries Benefit the Home Country?

Three main research questions:(How) does interaction with the more advanced system of innovation help developing country firms expand their capabilities?(How) do capabilities flow from the subsidiary in the more to the parent in the less developed system of innovation?(How) do capabilities disseminate from the parent to the other actors in the less developed system of innovation?

Both interviews and surveys to explore these questions

Data Gathering from FirmsMain sources: subsidiaries and parent of firmsAlso other actors in system of innovationInterviews

Few key people in organisationDetailed understanding of issuesPotential to identify important non-firm actors and institutions

SurveysInput can be gathered from more people – capabilities are developed in communitiesAddressing concerns about replicabilityQuantitative analysis

Summary of Data Sources per Topic

Actors to interview and/or survey

Develop capabilities with more advanced system of

innovation

Share capabilitie

s with parent

Disseminate capabilities

to less advanced system of

innovation

Subsidiary in host country

X X X?

Host country commercial infrastructure (suppliers, customers, competitors)

X

Host country institutional infrastructure (research consortia, government)

X

Home country parent X? X XHome country operations

X

Home country suppliers

X

Data Gathering from Firms – Some Concerns

LARGE number of sites (about 10 countries!)Enough funding secured to visit about half the sitesDifficulties with data gathering, especially conducting interviews:

Additional funding needed to visit remaining sitesTime Language – I do not speak Spanish (Mexico) or Portugese (Brazil)

If in some cases it may only be possible to obtain survey data – consider tradeoffs

Expanding Capabilities through Interaction with More Advanced Systems of Innovation

Data gathered from subsidiaries, institutional and other actors in more advanced system of innovation Also some archival data, e.g. press releasesHow do developing country firms gain access to more advanced systems of innovation?

Social networks, e.g. in Korean caseHaving something to contribute, i.e. reciprocity and membership of the “club” of innovators

Given their relationships with and in the system, what types of capabilities do they develop?

Expanding Capabilities through Interaction with More Advanced Systems of Innovation (cont.)Focus interview questions and survey items on:

Relationships and contacts between firm and other actorsCapabilities and contributions of firm that are seen as potentially valuable within new system of innovationBenefits sought in more developed context

Interviews can best uncover perceptions and relationships and how they determine access to more advanced system of innovationTriangulate by also interviewing host country actors Survey to focus on capabilities sought

Sharing Capabilities with Parent in Less Developed System of Innovation

Draw on literature on “reverse technology transfer” and knowledge flows within globally integrated MNC networkSurvey data most important in this sectionDevelop or adapt items on:

Types of knowledge that is shared with parentStrategies to support knowledge flows

Since knowledge creation is a communal process in which all parties play an active role:

Distribute surveys to multiple respondents in each siteSurvey subsidiaries as well as parent

Disseminating Capabilities to Less Developed System of Innovation

“Spillovers” of newly acquired expertise can be:Unintentional, e.g. through personnel movements Deliberate, e.g. company wants new procedure used

Unintentional spillovers hard to measure Focus on deliberate spillovers A stringent but narrow test – beneficial spillovers possible even where failure of deliberate spilloversTriangulate account of participants in system of innovation with that of focal firm

Disseminating Capabilities to Less Developed System of Innovation (cont.)

Home country actors most likely to be affected by new capabilities:

Domestic operating units of focal firm, e.g. local minesDomestic supplier networksDomestic non-firm research partners

Data gathered from multiple respondents in each unitOpen-ended interview as well as survey questions:

What types of relationships do they have with the focal firm?What types of capabilities do they develop, and how?

Summary

Feedback welcomed:Problem appropriately conceptualized?Methodology appropriate and doable?Second industry?

Develop capabilities in

interaction with more advanced

system of innovation

Share capabilities with parent

Disseminate capabilities

to less advanced system of innovation