Globelix Academy, Lisbon 2004 Interaction between TNC subsidiaries and the Host Country Innovation System The case of TNC subsidiaries located in Brazil Dirk M. Boehe Federal University of Rio Grande do Sul, School of Management Porto Alegre, Brazil

Content Research Interest General objective Some definitions Context Survey Specific objectives Research Framework Methodological aspects Exploratory Study Specific objectives Methodological aspects Results Part I Part II Part III

Research Interest & General Objective Research interest: to understand to what extend TNC subsidiaries located in latecomer countries may contribute to the host country innovation system. The general objective is to identify and discuss relationships between... 1) Different types of interaction between TNC subsidiaries and host country partner organisations in product development X 2) Different types of roles which TNC subsidiaries may play in their TNC’s product development activities

Definitions What means ‘interaction’? –Cooperation –Outsourcing –Use of equipments at external partners –Consulting –Information Source What means ‘subsidiary role’ / ‘R&D role’? –Geographic scope: Product development for local or global markets –Activity related scope: Takes into account different activities of the product development process

Why is this important? Why ‘interaction’ / ‘links’ with local institutions? 1.Interaction  cooperation  learning (Lundvall) 2.Local links might be important for diffusing knowledge to the host country innovation system 3.Thus, TNC subsidiaries may constitute an interface between the host country innovation system and other countries’ innovation systems. Why ‘subsidiary role’ or ‘R&D role’? 1.Global roles tend to be related with high technological capabilities (Birkinshaw & Hood, 1998). 2.High (innovative) technological capabilities tend to be related to strong local links (Lall, 1992; Bell & Pavitt, 1995; Figueiredo, 2002) 3.Specific types of global roles tend to be related to strong local links (Anderson et al, 2001; Frost et al, 2002) 4.Yesterday’s lecture: increasing outsourcing / offshoring also in R&D (Soete)  Hence, if we want to understand to what extent and why TNC subsidiaries’ R&D activities may interact with institutions of the host country innovation system, then we need to focus on its R&D role.

Exploratory Case Study Specific objectives Find out, what factors are (really) important for developing local links Develop a research model to be operationalised by a large scale survey (see part III)

Exploratory Case Study – Methodological Aspects –More than 20 subsidiaries from several industries, but –focusing on a group of 6 subsidiaries located in Brazil which have global R&D roles –open-ended interviews using interview guide with questions about: corporate environment (Role of R&D, relationships with other R&D units and headquarters of the TNC) Institutional environment (impacts of incentives, government regulations, macro-economic factors on R&D activities) local and global links with suppliers, clients, universities, etc. –Conceptual framework

Framework Global Science Links Global Technology Links Local Technology Links Local Science Links TNC Network Universities and R&D Institutes Local Suppliers and Buyers TNC Network, foreign Suppliers and Buyers Foreign R&D Unit as an “interface” between innovation systems

Exploratory Case Study - Results Factors which seem to be associated with different forms of interaction: A. Technological and Institutional Factors –Tax incentives scheme (“Informatics Law”) –Maturity of technology –Industrial Sector –Globalisation of technological standards B.TNC subsidiary –Decision-making autonomy –Relationships with other TNC subsidiaries / Headquarters –Employment of PhDs by R&D unit –Availability of resources (time and $) in order to build up cooperative links –Evolution of internal headcounts –Commitment to S&T policy of host country government

Exploratory Study - Results C.Host country Specificity of local demands (buyers) Specificity of local supply Availability of engineers and scientists Perception of ‘cultural divide’ between University and TNC Technological specialisation of the host country - availability of specific know-how at universities; - availability of highly specialised R&D equipment at host country partner organisations (cost and scale reasons) - existence of a local value chain with high innovative capabilities

Exploratory Study - Results Relationship between Role in R&D and Local Links Contradiction to previous academic research focused on industrialised countries: Several TNC subsidiaries have no local cooperative links but a global role in R&D. In these cases, high performance in terms of R&D costs compared to sister subsidiaries in other countries seems to explain why the focal TNC subsidiary has a global R&D role.

Exploratory Study - Results Proposed Typology of TNC subsidiaries with global R&D roles Local Science Links Strong Weak Local S&T Integration Absence of Local Integration Local Science Integration Local Technology Integration Strong Local Technology Links Weak

Survey Research Objectives: 1.Generalisation of case study findings 2.Testing propositions of research model a.Find out whether there is a relationship between the strength of cooperative links with host country partner institutions and the role of subsidiaries’ R&D units. b.Find out whether there is a relationship between the impact of relative costs and the strategic role of subsidiaries’ R&D units. (alternative hypothesis).

Web Survey Research – Methodological Aspects Unit of analysis: product development unit of strategic business units in subsidiaries of foreign owned TNCs located in Brazil Definition of the questionaire Cooperative Links –Contribution of link to learning / technological capabilities in R&D –Modification of product technology (Andersson & Forsgren, 2000) Outsourcing activities of the product development process Role in Product Development Headquarters’ mechanisms of project assignment in product development Relative costs –Perceived competitiveness of R&D unit –Relative cost position of R&D unit compared to sister units abroad

Procedure Use of Likert scales (1-5) for most variables Personal interviews: pre-tests Final tests using web survey (phone, , www) Check for differences regarding Industrial sectors (focus on 2 sectors) Accumulated experience measured in years Origin of capital Size of product development unit Web Survey Research – Methodological Aspects

Annex

TNC subsidiaries located in Brazil 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 0,90 1,00 ClientsSuppliersMNCUniversities Categories of Cooperation Partners % of innovating and cooperating subsidiaries The context – Cooperative Links of TNC subsidiaries in Brazil Nutrition and Beverages Industry Chemical Industry Electronic Machines and Equipment Industry Electronic and Communications Equipment Industry Automobiles and Transport Equipment Industry Data Source: IBGE, 2002

Case 1 (Siemens) - Local S&T Integration Global Science Links Global Technology Links Local Technology Links Local Science Links TNC Network Universities and R&D Institutes Local Suppliers and Buyers TNC Network, foreign Suppliers and Buyers Foreign R&D Unit with global role

Case 2 (Ericsson) Local Science Integration Local-Global Science Links Global Technology Links No Local Technology Links TNC Network and foreign R&D institutes Universities and R&D Institutes Specialized Suppliers and Buyers Foreign R&D Unit with global responsibilities TNC Network of software development centres

Case 3 (International Engines South America) - Local Technology Integration Global Science Links Global Technology Links Local Technology Links No Local Science Links Foreign R&D institutes (headquarters) Universities and R&D Institutes Specialized Suppliers and Buyers Foreign R&D Unit with global responsibilities Foreign Suppliers and Buyers

Case 4 (SpringerCarrier) – Absence of Local Integration Global Science Links Global Technology Links No Local Technology Links No Local Science Links TNC Network and foreign R&D institutes Universities and R&D Institutes Specialized Suppliers and Buyers Foreign R&D Unit with global responsibilities TNC Network and foreign Suppliers and Buyers

a_ea_ufrgs/questionario.htm SBU-code of subsidiary: 185C7 Survey Research – Preliminary results

n= 41 Preliminary analyses: simple regressions; frequencies Cooperative Links with university / research institutes are least relevant; cooperative links with buyers most relevant Product Development for global markets & Cooperative Links with local partners r = 0,37; r 2 =0,14; sig < 0,05 Product Development for global markets & Outsourcing Links with local partners r = 0,30; r 2 =0,08 ; sig= 0,06 Special Case: Local Outsourcing of Particular Product Development Activities & Ordered by other MNC units r=0,40; r 2 =0,16; sig < 0,01