Attractivité et politiques

Location factors in the activities related to innovation of multinationals

ImageEditor : OECD

Authors : Fabrice Hatem and Loriane Py


Executive summary

1. A significant amount of literature has already analysed the internationalisation trends and location determinants in activities related to innovation. In addition to scientific works by academics, a large share of the available literature stems from studies carried out by consulting companies and public reports. Studies are especially numerous regarding internationalisation motives and location determinant for R&D activities, and to a lesser extend, headquarters. Analyses are scarcer regarding location determinants in high-tech industries.

2. Regarding the motives for R&D internationalisation, two major driving forces have traditionally been identified. Firms invest abroad either i) to adapt their product and process to foreign consumer’s requirements or ii) to augment their specific capabilities by tapping into foreign knowledge and techniques. The recent expansion by MNEs of their international R&D activities outside the Triad, particularly in emerging Asian countries, suggests that cost and availability of large pools of scientific personnel are becoming important motives for R&D internationalisation as well.

3. Regarding location determinants in R&D activities, the most frequently mentioned general factors are market size, agglomeration forces, access to scientific and technical capabilities, and, increasingly, cost considerations, while there is more uncertainty about the impact of intellectual property right regimes. Beyond these general determinants, location behaviours differ depending on the nature of activity carried out abroad. Adaptive R&D facilities are more prone to locate closer to the final market, while the location of innovative R&D is driven by proximity to poles of technical and scientific excellence. Besides, while firms are prone to locate their adaptive R&D close to their existing production facilities, this effect is much more limited in the case of innovative R&D activities.

4. High-tech industries as a whole are particularly sensitive to the availability of high-quality resources (skilled labour, scientific infrastructure, etc.), while factors relative to labour cost considerations appear less influential than in the average of other industries. Studies on location determinants in high-tech activities, however, remain too heterogeneous and incomplete to allow us to point to definitive conclusions, especially at a detailed industry level.

5. Regarding headquarters, some studies on international location determinant rely upon comparisons between countries. The most frequently location factors mentioned by these studies are the presence of an environment favourable to business, the proximity to markets and production capabilities, the availability of skilled labour and the costs associated to corporate tax rates and wages. Many authors, however, prefer to implement their studies at the city level, as location decision for headquarters are based on direct comparisons between the major competing metropolitan areas. These studies show that firms locate their headquarters in cities featured by good transport facilities, high quality and diversity of business services, and by a large presence of other headquarters. However, the question of headquarter location determinants seems to have only limited links with the rest of the issues reviewed in our study.

6. The question of territorial attractiveness for innovation-related activities can be divided into three main issues. Regarding the actual performances, a large set of data is now available on the presence of foreign companies in various OECD countries. Data however are scarcer on emerging countries. Regarding the attractiveness potential, despite the existence of a large set of comparative data, there has not been yet an organised census and analysis of these data for the production of an « attractiveness scoreboard » for innovation-related activities. Finally, evidence on the nature and impact of public policies remains fragmental and limited.

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