R&D Internationalisation and R&D FDI in the UK
The UK, as a developed economy, is best placed to offer an innovative high-tech environment to support research-intensive activities. The national innovation base provides access to relevant localised research capabilities and innovative systems attractive for high-quality research (Cantwell et al. 2004; Cantwell and Mudambi 2005). The European Innovation Scoreboard 2018 ranked the UK the leader among EU member states on innovation. The ranking is based on the UKās best-performing indicators on excellent research systems and human resources. Equally to note is that multinational enterprises (MNEs) have an overwhelmingly positive and transformative effect on the UK economy. The UK host about 45,000 plus MNEs, which thus account for more than 13% of workforce employment (about 3 million workers) and 36% of the total turnover in the UK (Driffield et al. 2013). Recent data by the Office for National Statistics (ONS) of 40,000 UK companies show that foreign-owned firms in the UK are around 74% more productive than their domestic counterparts (ONS 2017). These, therefore, suggest that foreign affiliates play a vital role in the UKās technological development. Current UK R&D landscape shows that the UK is most appealing to MNEs for R&D activities compared to other top R&D performing states (DBIS 2016). For instance, the UK recorded about 44.3% of R&D performed by foreign-owned firms, compared to the US with about 14.3%, Japan 4.7%, Germany 26.2%, and France 22.1%. In terms of R&D foreign direct investment (FDI) in the UK, the US is the leading investor of UKās inward R&D, account for about 37% in 2016 (a decline from 45% in 2009). Behind the US are the Netherlands, Germany, France, and Japan occupying the second, third, fourth, and fifth position. The decline in US position could be as a result of the increase of inward R&D from other advanced countries as well as that from emerging markets (EMs). For example, Japan increased by 20%, Italy grew by 47%, South Africa increased by 48%, and Singapore increased by about 100%. The increase presences of MNEsā R&D activities in the UK corroborate with current phenomenon noted in the broader literature on R&D globalisation suggesting that MNEs operate in an increasingly competitive and complex environment. The growing number of MNEs from emerging markets (particularly from China, India, and Brazil) becoming internationally active performers and recipients of R&D (UNCTAD 2005; Gammeltoft 2006; Awate et al. 2015) raised fundamental questions among international business (IB) scholars as to what the motivations of R&D direct investments in a chosen location are (Von Zedtwitz and Gassmann 2002; Zheng and Tan 2011; Awate et al. 2015). The quest for knowledge and technological competences has become vital for survival and prosperity (Von Zedtwitz and Gassmann 2002; Cantwell and Mudambi 2005; Athukorala and Kohpaiboon 2010; Awate et al. 2015). It is well established in IB research that MNEs are attracted to locations that best fit the firmās technological specialisations (Blomstrƶm and Sjƶholm 1999; Dunning 2002).
In a series of papers that are linked to traditional FDI motivations in the UK, authors have all shown that FDI is motivated to either exploit or augment home-based assets also known as strategic motivations of FDI (Driffield and Munday 2000; Driffield and Love 2005; Driffield et al. 2013). Asset-exploiting MNEs are more likely to generate technology and thus produce positive spillovers to domestic firms through linkage and/or externalities, whereas MNEs attracted to augment home-based assets are unlikely to generate significant productivity growth or technological transfer. From these existing studies, little is known empirically whether the strategic motivations of R&D FDI are subject to different specific motivations at the country level.
Pearce and Papanastassiou (1999) investigated the strategic evolution of MNEs by examining foreign labs in the UK. They revealed that foreign-owned R&D subsidiaries have metamorphosed from offering small-scale ad hoc support to local operations to playing a central role in the global strategies of the MNEs. Becker and Hall (2003) studied the role of exchange rate uncertainty and R&D FDI between the EU area and the UK. They showed that increases in the volatility of euro-dollar exchange rates tend to relocate R&D investment from the euro area into the UK. Griffith et al. (2004) examined foreign ownership and the UKās productivity in the service sector and R&D. They found that foreign MNEs in the UK have higher labour productivity than British MNEs in the production sector compared to the service sector, where British MNEs have higher labour productivity. They also revealed that foreign-owned MNEs conduct a substantial amount of British R&D. Cantwell and Mudambi (2005) used firm-level data from the UK-based subsidiaries of non-UK MNEs to investigate the difference between competence-creating and competence-exploiting subsidiary mandates. Cantwell and Mudambi (2005) found that the mandates of MNEsā R&D subsidiaries depend on the MNE group-level and subsidiary-level characteristics, as well as locational factors. Abramovsky et al. (2007) conducted an empirical study of the location choices of foreign-owned pharmaceutical R&D laboratories near UK university departments. They found that foreign-owned R&D laboratories co-locate near top-ranking chemistry departments. Higon (2007) investigated the impact of foreign R&D spillovers on total factor productivity (TFP) in UK manufacturing but failed to find empirical evidence that foreign R&D investment significantly affects manufacturing TFP. Harris and Li (2008) examined export propensity and export intensity using UK establishment-level data for R&D spending. They revealed that R&D spending has no significant impact on exporting behaviour after controlling for absorptive capacity. Extending this research stream, this current research, therefore, conducts a country-level empirical analysis examining the motivations of R&D FDI in the UK....