Critically discuss how the geography of innovation affects the internationalisation of R&D in multinational enterprises (MNEs).

Lead firms can use different types of linkages to tap into foreign knowledge pockets: • organization-based pipelines by setting up foreign subsidiaries or formal inter-firm linkages • individual-based linkages through global mobility of inventors and experts Offshoring innovation activities or building knowledge pipelines allows firms to tap into knowledge clusters or centres of excellence around the world, so to diversify the firm knowledge base and speed up the acquisition of knowledge inputs that would otherwise be difficult to generate internally. However, it has also uncovered the most critical aspects of this knowledge sourcing approach, emphasizing the key role of integrative mechanisms and embeddedness in global knowledge networks. Lead firms need to develop orchestration capabilities to ensure that the entire value chain operates as a harmonious whole. The need to “know more than they make” create technological capabilities in a much broader range of technical fields than the core product fields in which they compete so they can identify and coordinate the integration of new technological developments along the GVC. Develop organizational knowledge that allows them to deal with both internal and external partners that are dispersed across the globe. Concentration: • Economies of scale and scope in R&D • Embeddedness in home innovation systems • Coordination costs, complexity and managerial bandwidth Dispersion: • Need to adapt products to local demand conditions • Tap into host innovation systems and access to a portfolio of knowledge pockets around the globe • Growing complexity and interdependence of technologies requires to widen the scope of knowledge search by building linkages to other locations Where innovation happens? 1) Within large MNEs/independent suppliers; 2) Concentrated/dispersed According to these studies, innovation takes place in the MNE’s home country, while foreign subsidiaries mostly adapt the product and process technology to the local context. Foreign subsidiaries are categorized as ‘Home-Base-Exploiting’ (Kuemmerle, 1999) or ‘Competence-Exploiting’ (Cantwell & Mudambi, 2005) since they mainly receive knowledge developed in the MNE’s domestic R&D centres and only carry out the final adaptation steps of the innovation process prior to commercialization. Over time MNEs’ foreign subsidiaries moved away from being mere “replicators” of their parent companies’ activities abroad, whose R&D efforts are limited to the adaptation of central units’ products and services to local needs. Rather, foreign units can engage in creative tasks to exploit opportunities emerging from their local contexts, and the innovative activities they perform locally may follow diverse routes and pursue different projects than those of the home country. Thus, supply-side factors emerged as critical triggers toward more home-base augmenting types of foreign R&D. This perspective has further been stimulated by the rise of global centers of excellence in geographically distributed areas of the world, which have worked as a powerful centrifugal force that pull MNE R&D activities outside of their home countries.