1. R&D transaction choices by MNCs in China: empirical analysis based on contracts Zheng Feihu Shi xiaoxiao

2. Background China’s potential for innovation; China’s potential for innovation; China attracts foreign R&D since 1995; China attracts foreign R&D since 1995; Beijing offers location advantages for Beijing offers location advantages for research-intensive R&D units since 1999. research-intensive R&D units since 1999.

3. A “Paradox” A “paradox” in the statistic about the MNCs’ R&D contract transactions in Beijing during 2001- 2006 A “paradox” in the statistic about the MNCs’ R&D contract transactions in Beijing during 2001- 2006 “Paradox”——only 18.15% of the deals is inside the MNCs under the same ownership, while most of the contracts are executed between the parties not having close ownership relationship. “Paradox”——only 18.15% of the deals is inside the MNCs under the same ownership, while most of the contracts are executed between the parties not having close ownership relationship.

4. For the R&D contracts transaction demanding mutual trust and large deal of proprietary assets inputs, why not choosing internalization but putting it to outside market ( here in after called outsourcing) ? For the R&D contracts transaction demanding mutual trust and large deal of proprietary assets inputs, why not choosing internalization but putting it to outside market ( here in after called outsourcing) ?

5. Aims of this paper what’s the cause of the so-called “paradox” in R&D contract transaction in Beijing? what’s the cause of the so-called “paradox” in R&D contract transaction in Beijing? what factors determine the choice of R&D contract outsourcing in Beijing using the framework of Williamson’s ” three- dimensional hypothesis”? what factors determine the choice of R&D contract outsourcing in Beijing using the framework of Williamson’s ” three- dimensional hypothesis”?

6. Descriptive analysis R&D activities in Beijing are in superior levels, and the spillover effect to abroad is obvious. R&D activities in Beijing are in superior levels, and the spillover effect to abroad is obvious. The internalization of R&D transaction in Beijing is not obvious, but the outsourcing of R&D contracts is prominent. The internalization of R&D transaction in Beijing is not obvious, but the outsourcing of R&D contracts is prominent.

7. Data and Research Method Dependent variable—— Outsourcing is coded as “1” and internalization-oriented activities Is coded as “0” Dependent variable—— Outsourcing is coded as “1” and internalization-oriented activities Is coded as “0” Independent variables—— We design the factors under the framework of ” three-dimensional hypothesis” ， all factors are categorized into three dimentions. Independent variables—— We design the factors under the framework of ” three-dimensional hypothesis” ， all factors are categorized into three dimentions.

8. transaction frequency transaction frequency ( the variable includes ： the average dealing amounts of R&D in the same district in half a year)

9. Uncertainty Uncertainty (the Proxy variables are from the outside R&D clustering environment, including ： (the Proxy variables are from the outside R&D clustering environment, including ： average salary 、 average salary 、 ratio of Manufactory industry 、 Intellectual Property protection 、 Financial disbursement means)

10. Assets specificity Assets specificity ( that’s up to MNCs’ features of ownership, the proxy variables include:) ( that’s up to MNCs’ features of ownership, the proxy variables include:) contracts time-span 、 contracts types 、 controlling interests of the R&D units.

11. control variables——dummy variable (IND) to control for industry differences. control variables——dummy variable (IND) to control for industry differences. those fields with human-orientation(mainly in fields of software and network development) is coded as “1”, other fields with asset-orientation is coded as “0”.

12. INDFreq.PercentCum. 020232.79 141467.21100 Total616100 Table 7. dummy variable for IND

13. Methodology P(ifos)=β1 IND+β2 otheramount+β3 avsalary+β4 secper+β5 intelpro+β6 method+β7 period+β8 contype1+β9 selltype3+β10 secsalary+β11 perfield+ μ

14. ifosCoef.Std. Err.P>|z| otheramount-3.31E-104.60E-090.943 avsalary-0.0002765 (***)0.0000960.004 secper-16.9572211.127980.128 intelpro-0.2900843 (***)0.0945780.002 contype1.449447 (***)0.3135320 method0.6134641 (***)0.2324290.008 period0.0011284 (***)0.0002590 selltype3-0.4822039 (**)0.212630.023 IND1.156235 (***)0.4205410.006 secsalary0.0009668 (***)0.0003580.007 indper-0.0011648 (***)0.0002860 _cons5.3828023.7546480.152 Table 9. Logistic Model Estimates for Formation of outsourcing-oriented R&D transaction Notes: ( *,p<10%; **, p<5%; ***, p<1%)

15. Results and Discussions the findings suggest that the two dimensions of Uncertainty and Assets Specificity can be used to explained MNCs’ R&D transaction in Beijing. the findings suggest that the two dimensions of Uncertainty and Assets Specificity can be used to explained MNCs’ R&D transaction in Beijing. But the dimension-transaction frequency, because of the unfavorable proxy variable, still can’t be tested. But the dimension-transaction frequency, because of the unfavorable proxy variable, still can’t be tested.

16. Results and Discussions the variables representing Uncertainty such as average salary level, IPRP, financial reimbursement means; the variables representing Uncertainty such as average salary level, IPRP, financial reimbursement means; and the variables representing Assets Specificity such as contract time-span, contract types, and controlling interests in seller’s R&D units are significantly related to the mode of outsourcing-oriented transaction. and the variables representing Assets Specificity such as contract time-span, contract types, and controlling interests in seller’s R&D units are significantly related to the mode of outsourcing-oriented transaction.

17. Solving the “Paradox” the combination of two conditions provides a good explanation for the above so-called “Paradox” the combination of two conditions provides a good explanation for the above so-called “Paradox” ——necessary condition ： the maturity of outside supplying resource ； ——adequate condition ： outsourcing business not conflicting with the ownership of the MNCs

18. Some suggestions For the local government, focusing on developing the conditions necessary to maintain a thriving localized research and development community For the local government, focusing on developing the conditions necessary to maintain a thriving localized research and development community For the MNCs, enhance the synergy between their international oriented R&D and the local oriented R&D activity. For the MNCs, enhance the synergy between their international oriented R&D and the local oriented R&D activity.

19. Limitation and future work Find a suitable proxy variable for the transaction frequency Find a suitable proxy variable for the transaction frequency Better our model with new factors such as the different contract features(international oriented/host oriented) and culture distance. Better our model with new factors such as the different contract features(international oriented/host oriented) and culture distance.

20. You are Welcome!