Rethinking FDI Promotion:New EU Member States on a bumpy road to Lisbon
PhD Project by
Sergey FilippovUNU-MERIT (Maastricht, NL)
GLOBELICS Academy, Lisbon
Outline of the Presentation
•Background•Conceptual idea•The new EU member states•Methodology•Conclusions
•Research in Progress
MNCs are the major players in innovation processRank Company Sector R&D (€ m),
2005
1 Ford Motor, USA Automobiles & parts 6 781.92
2 Pfizer, USA Pharmaceuticals 6 308.88
3 General Motors, USA Automobiles & parts 5 679.86
4 DaimlerChrysler, Germany Automobiles & parts 5 649.00
5 Microsoft, USA Software 5 581.52
6 Toyota Motor, Japan Automobiles & parts 5 423.93
7 Johnson & Johnson, USA Pharmaceuticals 5 350.94
8 Siemens, Germany Electrical comp. & equipment 5 155.00
9 Samsung Electronics, South Korea Electronic equipment 4 612.61
10 GlaxoSmithKline, UK Pharmaceuticals 4 564.13
Source: European Commission. 2007. Monitoring Industrial Research: The 2006 EU Industrial R&D Investment Scoreboard
MNC context
•MNCs are evolving from hierarchical structures towards network-based systems, where subsidiaries have distinct strategic roles and scope.
•“Devolution of power” facilitates knowledge and technology spillovers.
•R&D internationalisation. Manufacturing units gain R&D function. Establishment of stand-alone R&D labs.
Host Country Policy Context
•FDI promotion tends to neglect foreign affiliates already established in a host economy
•Importance of innovation policy is generally acknowledged, but it is still in infancy and, moreover, foreign affiliates are not explicitly targeted.
Multi-Level Policy & MNCs
National Regional (EU)
World
FDI Policy Investment incentives
State Aid rules
WTO
Innovation Policy
IPMs Lisbon Agenda
Corporate Strategies
Affiliates HQ level
Research Question
•How foreign affiliates become innovative? What are the determinants of the innovation dynamics in foreign affiliates?
•How can host country policy stimulate innovation in affiliates (in general and in new EU member states in particular)?
Objective
•In order to enhance innovation process in the host economy it is crucial to understand characteristics and determinants of innovation dynamics of foreign MNC affiliates
• Innovativeness of foreign affiliates depends on:▫position in MNC network▫characteristics of host country innovation
system▫host country public policy
Focus of research
Affiliates of Multinational Companies
Source: UNCTAD 2005
New Member States of the European Union
New EU member states• Strong presence of MNCs (=FDI stock), especially in
medium high tech.Characteristics of host country innovation system:
• Legacy of socialist S&THost country public policy:
• Impact of accession to the EU, two levels of policy-making
• Birth of national innovation policy (+ Lisbon Agenda)• National investment promotion agencies (CzechInvest,
PAIZ, ITDH) target higher value added FDI • R&D-related FDI is a means to achieve Barcelona
Target.
Share of foreign affiliates in BERD
3.43.4
14.1
19.019.122.1
23.724.7
4545.346.6
72.1
62.5
0
10
20
30
40
50
60
70
80
IE HU CZ SE UK NL CN DE PL SK US IN JP
Sources: UNCTAD 2005
•Western Europe 51 %•USA / Canada 22 %•Central & Eastern Europe 6 %•India 4 %•China 2 %•Other Asian countries 3 %
Foreign Investors’ Preferred Areas for R&D Activities
(Ernst & Young’s European Attractiveness Survey 2005)
Methodology•Qualitative analysis•Literature review + Conceptual part•Desk study: policy documents, searching
explicit links between FDI and Innovation (positive approach)
•Survey: a sample of foreign affiliates in several sectors: life sciences, automotive, electronics
•Case studies of selected companies•Designing a policy framework (normative
approach)
Expected Results
•Academic contribution▫Foreign affiliates in NIS▫Transition economies on the way to
knowledge-based economy
•Policy side▫A policy framework on coherency between
Innovation policy and FDI promotion
Research in Progress
•Life Sciences in the Czech Republic▫Pharmaceutical▫Biotechnology
R&D intensityR&D as % sales
Capex as % sales
Dividends as % sales
Operating profit as % sales
Pharmaceuticals and Biotechnology
14.9 4.9 6.4 20.2
Software and Computer Services 10.4 3.9 2.3 19.6
Technology Hardware 8.2 5.6 1.2 8.4
Source: UK’s 2006 DTI R&D Scoreboard Volume 1
Importance of R&D link to
Pharmaceuticals Semiconductor technology
Telecommunications technology
Pre-clinical
Clinical research
Process techno-logy
Product develop-ment
Hardware Software
Lead market Low Very high Low Very high Low Very high
Science / research system
Very high High High Low High Low
Production Low Low High Low High Low
Source: Reger et al. (1999),
Mode of entry / Functions /Policies
Acquisition Greenfield
Manufacturing
A B
Manufacturing + R&D
C D
R&D E F
Obrigado !