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1/1Internationalization of R&D Activities: Comparison of Japanese and European MultinationalFirms in the United StatesWe investigate regional difference in the degree of internationalization of R&Dandorganizational characteristics of multinational companies (MNCs) to enable absor

ptivecapability (AC) to absorb technological knowledge from the United States by Japanese andEuropean (mainly in German) MNCs. The findings show there are significant regionaldifferences in organization, and suggest that MNCs are constrained for increasing their AC bythe national environments, in particular those related to R&D people.INTRODUCTIONIn the past few decades, the world has seen the emergence of new technologies (e.g.,information technology (IT) and biotechnology) that serve as key technologies ac

ross sectors.In response to this, the management and organization of existing firms have beenchanging toexploit these new technologies and create new markets. The intensity of internationalizationof R&D to exploit local knowledge has taken on increasing significance (CantwellandPiscitello, 2000) whereas the internationalization of R&D has accelerated and isconcentratedheavily in the triad, i.e., the United States, Japan and several EU countries,with the US as acenter (Edler, Meyer-Krahmer, and Reger, 2002). There are clear differences in degrees of

international absorption of R&D knowledge by country, though there is considerable variancewithin countries, suggesting scope for managerial choice (Patel & Pavitt, 1991,1997). Japanand Germany are lagging far behind the UK and Switzerland (Gambardella, Orsenigo, andPammolli, 2000).This paper focuses on the absorptive capability (AC) of technological knowledgefrom theUnited States by Japanese and European (mainly German) multinational companies (MNCs)in the electronics, automobile, pharmaceuticals, and chemical industries. Employ

ing thenotion of absorptive capacity (Cohen and Levinthal, 1990) based on the framework of theresource-based view of a firm (RBV) and dynamic capabilities, we analyze the organizationaldifference between Japanese and European MNCs, which influence AC, and environmentaldeterminants, which shape organizations within.To remain internationally competitive, high technology based MNCs need to acquire andexploit technologies globally. There is a considerable evidence that MNCs continue to beshaped by their home environments (Bartlett and Ghoshal, 1998; Porter, 1990). Wh

en they2/2straddle multiple sets of national environments, they therefore need to adjust t


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heirorganization to the surroundings in the host country. However, since their headquarters areconstrained by the home country environments, these adjustments may not be possible toenforce. With regard to AC, firms aiming to absorb technologies abroad may not be able to

adjust their organization to the host country because of the environmental pressure in thehome country.By comparing MNCs headquartered in the two regions, Japan and Europe, and theirrespective home environments, this paper addresses the following questions: (1)Whatdifferences may exist in the degree of internationalization of R&D between European andEast Asian MNCs?; (2) What are the differences in the organization of R&D personnelbetween European and East Asian MNCs?; (3) How may home environments differ andinfluence the organizational characteristics of European and East Asian MNCs?

Our empirical analyses show that there are distinctive degrees of internationalR&D amongEast Asian and European MNCs. In addition, certain organizational characteristics regardingR&D people have significant associations with AC in the United States. Moreover,thesecharacteristics differ significantly between European and East Asian MNCs. Theseresultssuggest the home environments in the two regions, Japan and Europe, may influence thecharacteristics of firms R&D activities not only in the home country, but alsothose abroad.Experience of international R&D of MNCs and home national environments concernin

g R&Dpeople are introduced to explain the differences of MNCs by region.This paper is structured as follows. First, the theoretical background and previous studiesrelated to this paper are outlined. Second, the methods of this chapter are explained. Third,the empirical results of the data analysis concerning the performance of sales and patentcreation in the US and organizational difference between Japanese and European firms arepresented. The fourth section provides environmental evidences that may be regarded as thedeterminants of some of the organizational differences between Japanese and German firms.Finally, the conclusion and limitations are discussed.THEORETICAL BACKGROUNDEnvironments and OrganizationsEnvironments where firms are located shape and constrain the organizations (Bartlett &3/3Ghoshal, 1998; Porter, 1990). Researchers studying national innovation system (NIS) arguethat national environments such as R&D organizations, government policy, education system,industry-university relationship and financial system, facilitate and constrain

the science andtechnology activities within the systems (Edquist, 1997; Nelson, 1993). As the business


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activities become increasingly global, how nation-state specific factors affectthe managerialpractices has emerged as an important contingency (Lewin and Kim, 2004).Kogut (1991) develops arguments for why different national trajectories arise and persist andwhy institutional and organizational changes may be slower than technological changes. He

claims the required institutional and organizational change may be impossible toenforce dueto the unacceptable levels of changes in underlying principals for organizing work, of whichcountries differ in their application (Kogut, 1991). Certain changes may be legally andpolitically impossible in some countries and cultures. In the face of radical technologicalchange outside elsewhere in the world, high technology based MNCs may be locked-in theirhome country environments and may not be able to force organizational changes (Narula,

2002).The critical issue hitherto arises: How and to what extent do the environments constrainorganizational change in the era of radical technological change around the world? In theother words, how and to what extent can firms leverage their own firm-specific capabilities toresist the environmental pressures in the home and host countries and develop their ownR&D capabilities globally?MNCs that straddle multiple institutions provide us with valuable examples to examine therelationships between national environments and organizations. MNCs core capabi

lities arestrengthened by their home country environments (Porter, 1990). Yet, when they operateabroad, they are required to adjust their organization to the surroundings in the hostcountries. Some adjustments are possible to manage, but some may prove to be difficult orimpossible due to irresistible environmental pressures in the home country thatconstrainMNCs. This paper deals with the fundamental issues concerning this interplay between thenational environments and organizations.Absorptive CapacityAbsorptive capacity provides a useful perspective for an analysis of the capabilities of firms toabsorb technologies from external sources abroad. Absorptive capacity is one of the most4/4important constructs to emerge in organizational research over the past decades(Lane, Kokaand Pathak., 2002), and it has been explored and utilized by various researchesin the past atan individual level, at an organizational level or at a national level. According to Cohen andLevinthal (1990), absorptive capacity is the ability of a firm to recognize th

e value of newexternal information, assimilate it, and apply it to commercial ends. This capacity is largely a


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function of the firms level of prior related knowledge.Employing the nation of absorptive capacity, this paper uses the term absorptive capability(AC) to refer to the capability of absorbing technological knowledge from the United States.Established companies try to increase absorptive capacity when facing the emergence of

technologies they lack internally. However, firms are constrained by their own internal andexternal factors such as histories, paths, organizational structures, and shifting environmentsin home and host countries. Nevertheless, some firms are capable of influencingenvironmentsas well as changing organizations with strategies that reconcile internal and external factors(Patel and Pavitt., 1991, 1997; Teece, Pisano and Shuen, 1997).Absorptivbsorptive Capability of MNCsAs to the issue of absorption of technological knowledge across national borders, some

researchers use patents or scientific papers to analyze it at a country and sector level(Cantwell and Piscitello, 2000; Patel and Pavitt, 1997). Less research has, however, been doneat the level of the firm. Studies whose main focus is on international R&D management havedealt more with issues of motivation, location choices and roles of subsidiaries. The researchon technology sourcing by MNCs has focus on the levels of subsidiary or firm (Almeida, 1996;Frost, 2001). However, they barely touched on the transfer and combination of the sourcedknowledge within MNCs. Research on comparative management and international busi

nesshas tended to focuses on governance forms and task structure (Lam, 1997); knowledgetransfer within MNCs has become a subject of study only recently. Thus the organizationaland managerial implications of AC including internal knowledge combination and utilizationto managers of MNCs have hardly been investigated.Arai and Barron (2005) argue that AC consists of four capabilities, acquisition,combinative,independence and utilization capabilities (See Appendix 1 for the definition ofeach capability).They found interrelations between them as shown in Figure 1 (Arai and Barron, 2005).Interestingly, there is no significant correlation between acquisition capability (share ofpatents relying on US knowledge) and utilization capability (proportion of salesof a firm in5/5the US). Instead, the result shows a significant positive association of combinative capabilitywith utilization capability, which suggests the critical role of intensive collaboration in theintegration of home and US knowledge and in bringing about high economic performance in

the US market. In addition, the significant positive correlation of independencecapabilitywith acquisition capability implies the importance of the autonomy of US subsidi


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aries inimproving the acquisition of US knowledge. Overall, the results suggest that both combinativeand independence capabilities are critical to AC and that there may be a mediating effect ofcombinative capability and independence on the relationship between utilizationcapability

and acquisition capability (Figure 2).-----------------------------------------------Insert Figures 1 and 2 about here.-----------------------------------------------Arai (2006) further found that most of the organizational characteristics of MNCs associatedwith combinative and independence capabilities contrast whereas some of those regardinghuman resources at the corporate R&D centers have significant correlation with bothcapabilities in the same directions. This implies that R&D people of a firm mayplay a critical

role directly and indirectly in the successful absorption of technological knowledge fromabroad. Given these results, this study aims to compare East Asian (mainly Japanese) andEuropean (mainly German) MNCs, paying particular attention to their degree ofinternationalization, organizational differences affecting AC, and environmentaleffects onthese organizational differences.METHODSResearch SettingThese hypotheses are tested in the context of the R&D activities of East Asian (Japanese andKorean) and European (German, Swiss, Dutch, Swedish and Finnish) MNCs that carry

outR&D in the US as well as in their home countries. All the countries where the MNCs areheadquartered are members of the OECD and invest a high percentage of their GDPin R&D.These countries share national borders or similar backgrounds culturally and historically. Theunit of analysis is the R&D organization of individual firms. The firms were selected from theelectronics, engineering, chemical and pharmaceutical industries. Firms in theseindustries6/6have relatively high R&D intensity (R&D expenditure/sales).SampleAfter choosing the home countries of firms to be sampled, we identified the population of thepotential sample firms to be studied from the lists that ranked firms of each country or bysector worldwide (e.g., OECD Outlooks, Shushoku-shiki-hou WEB, Die Zeit, WorldInvestment Report 2002). Then we chose the firms with which we had prior contacts orpotential contacts through mediating people or organizations such as industrialorganizationsand research institutes. These personal contacts and introduction by local netwo

rks were veryimportant because of the sensitivity of the subject of R&D activities. Then we made


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exploratory semi-structured interviews.After this process, we invited the selected firms to participate in a survey that includedinterviews and questionnaires. More than 50 firms expressed initial interest andwere visitedat least once to conduct structured interviews. Out of these firms, nearly 40 firms completed

the questionnaires at their headquarters or main corporate R&D centers in 2003 or 2004.Patent information for these firms was collected through the European Patent Office (EPO).To compare AC by region, 47 firms that we interviewed at least once and had patent data goodenough for comparative analysis are included (Table 1). For the analysis of thequestionnaireitems that relate to human resources, 33 firms are included (Table 2). These 33firms had bothreliable responses to the questionnaires and patent data. The firms analyzed inthe human

resources questionnaire represent four nationalities: Japanese, German, Swiss and Dutch.----------------------------------------------Insert Tables 1 and 2 about here.----------------------------------------------DataWe use five sets of data: 1) responses to the questionnaires, 2) interviews, 3)public companydata regarding sales and R&D, 4) patent data, 5) government data at a country level. Thepublic company data were gathered from their special reports to the national authorities ofthe stock markets or US authorities as well as from their annual reports. When t

hese datawere not included in published reports, enquiries were made to each company directly.7/7As regards interview information, we conducted extensive semi-structured interviews withover 160 managers (1 to 8 people from each firm) in the Japanese and European firms in thethree regions, Japan, Europe and the US, from 2001 to 2002. The primary objective of theinterviews was to explore and understand the factors managers believed to be importantbecause the international R&D activities at a firm level with respect to organization andmanagement were still poorly understood. The exploratory interviews were followed byconceptual ordering. As a result, five major organizational elements were elucidated: types ofR&D activities, decision making, external relationships, human resource, knowledge sharing,control and coordination.From the summer of 2003 to 2004, the questionnaire was administered to senior managers atthe corporate R&D centers in the home country. These managers were generally atthe level of

reporting directly to the Chief Technology Officer (CTO) or his/her deputy. Theconstructs andeach question in the questionnaires were based upon the extensive prior intervie


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ws. Thequestionnaires contain the five major elements of organizational characteristicsidentifiedduring the exploratory interviews. They cover not only R&D units, but also otherfunctionalunits. Some questions on organization were prepared to double check and confirmthe validity

of the results from different aspects. Prior to the survey, the questionnaires were tested by afew researchers and engineers in pharmaceutical and electronics industries we had a closecontact with.Patent data are the main source of information used to track technological innovations in thedispersed R&D locations of the Japanese and European MNCs in this study. The propensity topatent differs across industries, however, and some firms are less interested infiling patents,which makes it difficult to compare the success at developing inventions of firm

s by means ofpatent data (von Hippel, 1994). Nevertheless, large MNCs, particularly those inthe industrieswe study, file patents vigorously enough for researchers to use patent data to analyze theirR&D activities (Patel & Pavitt, 1997).We analyzed a total of 613,583 patents that were granted to the 47 companies (includingtheir consolidated subsidiaries) in the study. These were the patents filed between 1995 and1999, either with the United States Patent and Trademark Office (USPTO), WorldIntellectual Property Organization (WIPO), EPO or the national patent offices ofthe countries

where the firms headquarters are located. Because MNCs often subsequently filepatents forthe same invention in several countries, we used only the first-filed patents inorder to avoiddouble or triple counting. These data were selected by the EPO, which has all the patent data8/8filed in the patent offices listed above. The numbers of patents granted for thesame number ofinventions differ in the patent systems of each region and country. Therefore, we scaled downthe number of Japanese and Korean patents by a factor of 4.9 to re-evaluate thevolume ofinventions1.We chose the patents whose priority date (i.e., the date a patent application was filed inany country that has signed the Paris Convention) was between 1995 and 1999. These dateswere chosen primarily because of comparability of patent data as follows. The first reason isthe time lag between inventions and market performance. The average time lag varies acrosssector. However, it takes at least three to four years according to the interviewees. Since thesales were measured as of 2002, we decided to include patents first filed until

the end of 1999.Second, firms patent strategy had evolved since the early 1990s. German firms,in particular,


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increased their patent filings despite the stable R&D expenditure during the same period.Third, Japanese firms became more intensive in their internationalization in the1990s, whilesome companies, particularly in small countries, started to internationalize their R&Dactivities much earlier (Kuemmerle, 1999). For the last two reasons, it was nece

ssary to limitdata filed after 1995.1 To deal with the problem of varying numbers of patents per invention, Eaton andKortum (1999) used a factor of 4.9 to scale down domestic patents in Japan basedon theanalysis of Okada (1992). Using the data on the number of claims of inventions,Okadafinds that Japanese patents granted to foreigners contain on average 4.9 times as manyinventive claims as those granted to Japanese inventors, and others all have a similar

average number of claims per patent. In addition, according to the study of EPO,thefactor to scale down Japanese patents should be between 3 and 5. In addition, theKorean patent system is very similar to the Japanese one due to their historicalassimilation of every Japanese policy, which was confirmed with the experts in thepatent issue. Hence it is assumed the Korean patents have a similar tendency tothoseof the Japanese. Therefore I tested the factors of 3 and 4.9, and the principaleresultswere same.Okada, Y. 1992. Tokkyo Seido no Ho to Keizaigaku (The Law and Economics of the

Patent System), Staff paper, Shinshu University. Shinshu. Eaton, J. & Kortum, S.1999.International Technology Diffusion: Theory and Measurement. International EconomicReview, 40(3): 537-570.9/9STATISTICAL RESULTSThis section reports the statistical analyses of the patents, sales, and questionnaires, whichshow the regional difference between Japanese and European (mainly German) MNCs.Comparison of patents and sales between European and East Asian MNCsThis section presents the analyses of patent and sales of 47 MNCs. Table 3 showsthe means ofkey variables by region and industry. On average, compared in the same industries, EuropeanMNCs have higher annual turnover, R&D expenditure and R&D intensity, and US marketshare as a fraction of the total sales of a firm (USM) than their Japanese/Korean counterparts.Their share of R&D staff in the US is also higher. USM and R&D intensity are slightly higherfor pharmaceutical and chemical industries in both regions, although turnover and R&Dexpenditure are higher for electronics and automobile industries. The Japanese/Korean

electronics and automobile firms have a higher percentage of expatriates in their US R&Dcenters on average.


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------------------------------------Insert Table 3 about here.------------------------------------To examine the statistical regional (East Asia and Europe) difference in the share of R&Dpeople in the home country as well as the capabilities comprising ACUS, USCC andUSOL, we

used ordinary least square (OLS) analysis controlled by three variables: sector,R&Dexpenditure (RDE) and R&D intensity (RDI). These variables were chosen as controls for thefollowing reasons. Researchers have recognized differences in AC by industry (Cantwell andPiscitello, 2000; Patel and Pavitt, 1997). Therefore this study also uses industry(electronics/automobiles vs. pharmaceuticals/chemicals) as a control variable. As for RDE,firms need internal R&D capability to assimilate external R&D knowledge. Prior research

finds firms R&D investment increases acquisition of external technologies (Lim,2004;Rosenberg, 1990; Veugelers, 1997). Thus firms total RDE is expected to influence positivelythe absorption of US knowledge.In addition, the RDI of a firm is included to capture the differences in firmscommitment todeveloping their knowledge base. Applied economists believe there are three classes ofindustry-level determinants of RDI: demand, appropriability and technological opportunity10/10conditions (Cohen and Levinthal, 1989). Cohen and Levinthal (1990) used the same

measureas a proxy for a firms absorptive capacity. Thus including this measure enablesus to betterassess the interrelationships between various capabilities being independent ofthe total AC.Factor analysis, including the variables of the four capabilities as well as RDE, RDI, totalannual sales and total employees of a firm, tells us that RDE, total annual sales and totalemployees, belong to one of three components whereas RDI is in another, and allthe othervariables are in a third component. Thus by including RDE, the size of a firm interms of totalannual sales and total employees is taken into consideration to some extent.The result of the regression shows that the proportion of R&D people at corporate R&Dcenters in the home country of all those in the world is significantly higher (at the 0.01 level)for the Japanese MNCs (78.7% on average) than the Europeans (70.5% on average) (Theparameter estimate is 0.306 when Japan is 1 and Europe is 0.). The European firms havemuch more globally dispersed R&D centers than the Japanese, which coincides withthefinding below that there are a significantly higher proportion of foreign nation

alities and morediverse inventors nationalities in the European firms patents.With regard to the patent performance, the statistical results (OLS) show that t


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he capabilitiescomprising AC of the Japanese/Korean firms are significantly lower than that ofthe Europeancounterparts except for utilization capability (Table 4). Acquisition capability(at the 0.1 level),combinative capability (at the 0.1 level) and independence capability (at the 0.01 level) of the

Japanese/Korean firms are all significantly lower than that of the European firms.------------------------------------Insert Table 4 about here.------------------------------------The difference in independence capability suggests that the European firms allowmoreautonomy to their R&D subsidiaries in the US than the Japanese/Korean firms. This may beat least partly explained by the difference in entry mode: the Europeans rely more on M&A ingeneral than Japanese firms (Kuemmerle, 1999; Arai, 2006). Consequently US subsi

diariesare less integrated and more independent from the headquarters. Another reason may be thatJapanese/Korean firms are not usually engaged in the types of R&D that requiressubstantialautonomy of US R&D people to explore new possibility by themselves.11/11A previous study found that there is a significant positive correlation betweencombinativecapability and utilization capability when both European and Japanese /Korean firms areincluded (Arai and Barron, 2005). However, it is not so when only Japanese/Korean firms are

examined. In addition, this study finds that Japanese/Korean firms have a significantly lowerlevel of combinative capability than Europeans. This means these East Asian firms can attaina high share of sales in the US without combining home knowledge with that of the US.This may imply that Japanese and Korean firms intentionally try to separate thehome andUS R&D more than the European firms because their culture, languages, and ways of R&Dare more distant from those of the US. Japanese/Korean firms may make more effort to dividethe work into modules in order to share it between the home country and the US because it ismore difficult for Japanese/Korean firms to co-operate with the US people in thecase forEuropean firms. In general, Asian firms have less R&D experience in the US thanEuropeans,as we discuss later. Hence, they may not know how to integrate US and home countryknowledge. It is possible that they may become more like their European counterparts indeveloping synergies between the home and US R&D people to increase US sales astheyaccumulate experience in the future.

Zooming into the composition of acquisition capability (share of patents that have Americaninventors of all the patents of a firm filed in any of the patent offices listed


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above), theEuropean firms have more diverse combination of US knowledge with that of othernationalities than the Japanese/Korean firms as shown Fig. 3, 4, 5, and 6. The othernationalities are mostly other Europeans.-------------------------------------------------------Insert Figures 3, 4, 5, and 6 about here.

-------------------------------------------------------Whether the R&D network of European firms is truly integrated or not (Bergek andBerggren,2004), this indicates more complex integration of knowledge of the European MNCswhosesubsidiaries in other European countries interact directly with US subsidiaries.On the otherhand, the R&D of their East Asian counterparts is more concentrated on the homecountry,and their international R&D activities are primarily focused on the US. This isconsistentwith the results of other researchers argued (von Zedtwitz and Gassmann, 2002).

There seemsto exist a clear regional difference between European and East Asian firms not only in thedegree of acquisition of US knowledge, but also in the patterns of combination of inventors12/12with various nationalities.Comparison R&D People at the Corporate R&D Centersbetween European and East Asian MNCsThis section presents the results of a questionnaire survey regarding R&D peopleat thecorporate R&D centers of 33 European (mainly German) and Japanese MNCs listed inTable 2.

In the questionnaires, respondents were asked to give the percentage of R&D people atcorporate R&D centers in the home country of all the R&D staff at corporate R&Dcenters inthe world. They were also asked the proportion of R&D staff with various attributes atcorporate R&D centers in the home country, such as academic degrees, foreigncitizenships,gender, postdoctoral experience and working experience in other firms using 5-point Likertscales.We rely on the questionnaire survey to analyze the difference of R&D peoples attributesbetween Japanese and European firms. For the dependent variables derived from thequestions based on Likert scales, ordinal logistic regression (sometimes known as the orderedlogit model) is used to obtain parameter estimates of an independent variable, region (Japanand Europe). Although it is common practice to use OLS analysis with data of this type, it ismore appropriate to rely on ordinal logistic regression2.The statistical results show that the European firms have a significantly higherproportion ofR&D staff with foreign citizenship, foreign citizenship hired in the last thr

ee years, doctoraldegrees, foreign degrees and postdoctoral experience than the Japanese (Table 5). There is


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no significant regional difference in gender and staff hired in the last three years withoutworking experience.------------------------------------Insert Table 5 about here.------------------------------------2 It is more appropriate to rely on ordinal logistic regression for a number of

reasons.First, the OLS method involves the assumption that the dependent variable has anormal distribution, but this clearly cannot be the case when the variable is ordinal.Therefore OLS will not be an efficient estimator. Second, OLS may produce predictedvalues that are beyond the actual range of the scale (that is, less than 1 or greater than5). We obtained the estimates by using maximum likelihood estimation as implementedby SPSS.13/13

As explained above, the previous study revealed that, while most of the organizationalcharacteristics other than human resources have contrasting associations with combinativeand independence capabilities, several attributes of human resources such as foreigncitizenship and post-doctoral experiences at the corporate R&D centers in thehome countryhave significant associations with the two capabilities in the same directions:Thecharacteristics of foreign citizenship, foreign citizenship hired in the lastthree years, anddoctoral degrees have a significant positive association with one of the two c

apabilitieswhereas the characteristics of gender and new graduates without working experiences haveno significant correlation with any of the capabilities (Arai, 2006).Therefore, the findings of this study concerning the regional difference (in foreign citizenship,foreign citizenship hired in the last three years, doctoral degrees, foreign degrees andpostdoctoral experience) suggest the European firms have more R&D people withattributesthat can directly or indirectly contribute to enhancing AC than Japanese firms.These resultsraise the question of why there are such differences between European and Japanese firms?The next section deals with this question.NATONAL ENVIRONMENTS IN THE US, GERMANY AND JAPANThis section aims to explain how the experience of international R&D of MNCs andthehistorical background and national environments in the US, Germany and Japan mayhaveinfluenced the regional difference in the degree of international R&D and characteristics ofR&D staff of European and Japanese MNCs, which are identified above. The followingsections aim to explain the national environments in each country.

GDP, Population and IndustryWith regard to the size of each country, The GDPs (Gross Domestic Products) of the US,


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Germany and Japan are 5563, 1967 and 3885 (constant 1995) US billion dollars respectively.The populations are 28.5 (US), 8.2 (Germany), and 12.7 (Japan) million. The GDPper capita islargest in Japan, 44,457(constant 1995 US billion dollars), followed by Germany(32,813) andthe US (31,592). As for the industrial structure of the three countries in terms

of the GDP andemployment, the second industry is more prominent in Germany (GDP, 31.9%; employment,34.3%) and Japan (GDP, 37.1 %; employment, 33.0%) than in the US (GDP, 25.2%;14/14employment, 24.2%). The US, on the other hand, has the largest shares of the GDPandemployment in the third industry. The share of manufacturing sector in GDP is very similarbetween Germany (GDP, 23.6%) and Japan (GDP, 24.3%), and it is much higher thanin theUS (GDP, 17.0%). These indicate that the industrial structures, at least with re

spect to thesecond industry and manufacturing sector, in Japan and Germany are more similarto eachother than that of the US.Experiences of International R&DHistory and recent changes of international R&D. Internationalization of scienceandtechnology dates back to ancient times. We find evidence of inter-relationshipsamongcivilizations from the era of the four great civilizations in the world. The transfer of industryrelated to knowledge was observed before and after the first industrial revolution in Europe in

the eighteenth century. In the past few centuries, the technological hegemony has moved fromcountry through country in Europe and the US (Yakushiji, 1989). The flow of scientific andtechnological knowledge between countries has become more and more intensive asthenumber of industrialized states has increased. Whenever a country began to industrialize andto emerge as a significant economic power, they imitated, exploited, and accumulated theknowledge of leaders in a variety of ways.The internationalization of R&D has become increasingly significant in the pastfew decades,particularly in response to the rapid rise of new technologies. Large incumbentfirms areincrementally shifting and expanding their competence through collaboration withother hightechnology based firms and universities, including those based overseas. They donotnecessarily just expand their expertise in their own central laboratories as they did before.This is in part because it is difficult or expensive for firms to enhance theirin-housecapabilities rapidly in new areas of research. It is also because they want to wait and see the

progress and profitability of new technologies in light of their business duringthe initialtrial-and-error or pre-paradigmatic period. A rapidly growing number of R&D rela


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tedalliances, mergers, joint ventures, and strategic partnerships on a global scaleas well as offoreign direct investment in R&D have been observed especially in the 1980s and1990s. Theliterature shows that these are heavily concentrated in the triad: the US, Japanand a few

countries in Europe (Edler, Meyer-Krahmer, and Reger, 2001)Organizational forms. At the level of the firm, as Gerybadze and Reger (1999) suggest, inthe process of internationalization of R&D, the change of management has resulted in new15/15organizational forms, stronger cross-functional integration, and boundary-spanninginnovation processes. Past studies have developed various taxonomies for international R&Dunits, such as ethnocentric centralized R&D, geocentric centralized R&D, polycentric

decentralized R&D, R&D hub model, integrated R&D though they have not achieved to showa comprehensive model for organizational change in R&D organizations (Gassman and vonZedtwitz, 1999). These studies have been particularly weak in assessing whetherthere is anyassociation between types of organizations and performance.With regard to regional differences in the organization of the global R&D unitsof MNCs,researchers have usually categorized most European large MNCs into a decentralized modeland most Japanese large MNCs into a decentralized model (e.g. Gassman and von Zedtwitz,

1999, 2000; Gerybadze and Reger, 1999). They argue most Japanese firms have notyetdeveloped an organizational capability suitable for managing international R&D to utilizeglobally dispersed knowledge (Gassman and von Zedtwitz, 1999, 2000; Gerybadze and Reger,1999).Foreign direct investment (FDI) in R&D. With regard to outward R&D investment, USfirms are pioneer investors in R&D facilities abroad, while European firms investmentreached US levels in the late 1970s. Since the late 1980s, Japanese firms have increased theiroverseas R&D activities (Jungmittag, Meyer-Krahmer and Reger, 1999). The UnitedStates isa significant recipient country for foreign R&D expenditure (Jungmittag, Meyer-Krahmer andReger, 1999). Many industrialized countries, including Japan and Germany, extended theirR&D activities in the 1990s (Science and Engineering Indicators, 2004). According toJungmittag, Meyer-Krahmer and Reger (1999), the great increase of German firmsR&Dexpenditure from 1994 to 1995 is primarily explained by the boom in acquisitions, particularly

in the pharmaceutical industry.Regional comparison shows that European firms R&D investment in the US is muchgreater


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than that of Japanese (Figure 7). Taking into account the size of the countries(Table 6),Germany has a higher proportion of their R&D investment in the US than Japan. Moreover,firms from smaller countries such as Switzerland and the Netherlands have a muchhigherproportion of their R&D investment in the US than their European counterparts in

Germany.--------------------------------------------Insert Tables 6 and 7 about here.--------------------------------------------16/16-------------------------------------Insert Figure 7 about here.-------------------------------------The data on the inward R&D investment, on the other hand, shows that the proportions ofinvestment by foreign firms in the US, Germany and Sweden are almost equivalent(US,

15.3%; Germany, 15.9%; Sweden, 14.0%) while it is only 5.2% in Japan and is as high as 25.8%in the UK and 67.0% in Ireland (Jungmittag, Meyer-Krahmer and Reger, 1999). Jungmittag,Meyer-Krahmer and Reger (1999) argue that the share of foreign R&D is especiallyhigh inthose countries in which foreign enterprises are strongly represented in manufacturingindustry. Japan and Germany have a similar share of manufacturing industry in their GDPand employment (Table 7), so the difference of inward FDI in R&D is not probablydue to thisbias.

Inventors of Patents. The analysis of inventors addresses, shown on patents, allows us toinvestigate the location of sources of knowledge that firms acquire. A t a country and sectorlevel, a number of researchers reported a large difference in the degree of acquisition offoreign knowledge by firms (e.g., Cantwell and P; Criscuolo, 2004; Gambardella,Orsenigo andPammolli, 2000). Criscuolo, (2004), for example, shows the varying degrees ofinternationalization of R&D by region and sector from the patent data of firms listed in theFortune 500 (Table 8).-------------------------------------Insert Table 8 about here.-------------------------------------Generally speaking, Japanese firms have a far higher proportion of inventors inthe homecountry compared to European counterparts. The average percentage of US inventors ofEuropean pharmaceutical companies is 38.7%. However, that of firms in the automobileindustry is small (Europe, 5.5%; Japan 0.80%) compared with compared with otherhightechnology industries. This suggests that European and Japanese automobile firmsstill rely

primarily on technological competence in their home country, which is more advanced thanthat in the US.


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For a specific case of MNCs engaged in biotechnology, Gambardella, Orsenigo andPammolli17/17(2000) report that several British and Swiss firms have most aggressively exploitedbiotechnology in the US. On the other hand, German, French and Italian firms appear to be

slower, and Japanese firms lag far behind. Large Japanese pharmaceutical companies havebeen particularly slow to embrace the new technologies. Interestingly, the mostsubstantialinvestment of Japanese firms in biotechnology has been made by firms with historicalstrengths in fermentation-based industries (Henderson, Orsenigo, and Pisano, 1999). Out ofthe top 30 companies world-wide, Swiss firms account for 49.7% of patents with US inventorsthat were filed in the US, while the share is lower for British (21.3%), German(17.8%), and

Japanese firms (1.9%), although there is a bias from the number of firms included in thesample and country size (Gambardella, Orsenigo and Pammolli, 2000).Human Resources for R&D ActivitiesR&D people with doctoral degrees The number of people with doctoral degrees maybe oneof the critical factors that sustain high levels of R&D activity in high technology basedindustries. This may be particularly important in rapidly changing technologicalfields thatrequire strong linkage with basic science. The statistical results of the questionnaires andpatent analysis show the percentage of doctorates among R&D people at corporate

R&Dcenters in the home country has a significant positive association with independencecapability (Arai, 2006). They also show the percentage of people with postdoctoral experienceat corporate R&D centers in the home country has a significant positive association with bothindependence and combinative capabilities (Arai, 2006). Thus a shortage of qualified R&Dpeople with advanced degrees may limit the acquisition of technological knowledge fromabroad as well as R&D activities of high tech firms in the home country.The numbers of doctoral degrees obtained by field vary across the US, Germany and Japan asshown in Table 9. In natural science, Germany has the largest number of doctoraldegreeobtained per 10,000 (0.726) in 2001, which is followed by the US (0.312) and Japan (0.125). Inthe field of biology, Germany also has the greatest number of doctoral degree obtained amongthe three countries, but the number in Germany fluctuated in the 1990s while theUS andJapan have increased the numbers steadily during the same period (Table 10). These suggestthat the national environment in Germany is more favorable for MNCs to recruit n

ewqualified graduates than in Japan.---------------------------------------------------------


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Insert Tables 9 and Table 10 about here.18/18---------------------------------------------------------Foreign students and researchers in the home country and the US. Foreign students in thehome country of MNCs are sources of new foreign employees for firms. The empirical results

show the proportion of R&D staff with foreign citizenship has a significant positivecorrelation with combinative capability, and the proportion of those with foreign degree has asignificant positive correlation with both combinative and independence capabilities. A largenumber of foreign students in the home country can increase the possibility of hiring foreignR&D staff and indirectly enhance firms AC. The proportions of foreign studentsin highereducation in the three countries vary substantially: US (3.5%), Germany (9.6%) and Japan

(1.6%). With respect to the foreign students in the US, the proportion of foreign students atthe top universities such as Stanford University, Harvard University, and MIT byhomecountry is consistent with the national average (Appendix 2).The majority of foreign students in Germany are from Turkey or other European countries,while those in the US and Japan are mostly Asian3. The national backgrounds of foreignstudents may be similar in Japan and the US, but the quality and rate of stay aftergraduation of those students may differ between the two countries according to several

informants at the Ministry of Education, Culture, Sport, Science and Technology,Japan(MEXT) and at Japanese universities. An official at the MEXT informed:The national goal of receiving 100,000 overseas students has been achieved sincea few yearsago. Now it is time to focus more on the quality of the students rather than quantity. We wantmore students from Asia with high academic quality, but we hear the best students tend to goto the United States. The students prefer American universities because of the language,future job opportunity, and conditions at universities. It is often complained that the Japaneseuniversities are less open than American universities and are not well preparedto educateinternational students.The result of the survey of the MEXT to higher education institutions shows there are only103 foreign graduate students in Japan who had an internship experience in the fiscal year2004, while in the US and Europe internship for graduate students is much more common.3 Share of foreign students in each country as of 1998: US, 3.5% (China, 9.8%; Japan,9.8%; Korea, 8.9%; India, 7.0%; Canada, 4.6%); Germany, 9.6% (Turkey, 15.7%; Ira

n,5.2%; Greece, 5.0%; Austria, 4.0%; Italy, 4.0%; Poland, 4.0%); Japan, 1.6% (China, 45.6%,


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Korea, 33.0%, Malaysia, 3.7%) (Source: International Mobility of the Highly Skilled,OECD, 2001)19/19This indicates that it is more difficult for foreign students to find a job in Japan than inEurope even if they wanted. In addition, Japanese managers said Japanese firms w

ere veryreluctant to hire foreign researchers and engineers because foreign employees tended to leavetheir firms and go back home before long.There are more Japanese graduate students in US universities than Germans (OECDEducation database). This indicates that Japanese MNCs in the US are more likelyto be ableto hire new staff with US academic degrees. However, the number of foreign-bornUSresearchers with science and engineering doctorates born in Japan is smaller than that ofGermany (Table 11). This may be partly because the number of Japanese students h

asincreased relatively recently compared with that of Germans. It may be also because GermanR&D people are more likely to stay in the US after graduating from the US universities orthere may be more German immigrants with doctoral degrees into the US than Japanese.--------------------------------------Insert Table 11 about here.-------------------------------------The R&D staff that can understand practices both in the US and home country mayimprovethe connectivity and facilitate communication and understanding between the head

quartersand subsidiaries. The larger number of German researchers in the US than Japanese maysuggest that R&D subsidiaries of German MNCs have a greater advantage over theirJapanese counterparts because there are more German R&D people who can be hiredlocallyin the US.International scientific collaboration. International collaboration in the areaof basicscience among researchers can provide a basis for international R&D activities of MNCs. Forexample, it promotes the networking among scientists across national boundaries,which givesfirms valuable formal and informal information and contacts of other countries;contributes toharmonizing research terms and methods; and, very importantly, helps educate andtraininternationally competitive new graduates.The proportions of internationally coauthored articles differ among countries: US (23.2%),Germany (41.2%), and Japan (19.7%) (Table 12). From 1994 to 2001, the shares haveincreased for all the three countries: US (7.4%), Germany (11.1%), and Japan (6.0%). Germanauthors have the greatest proportion, but the percentage of articles coauthored

with US20/20researchers is smaller (29.9%) than that of Japan (42.8%). Between 1994 and 2001


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, Japanesecoauthored articles with US people grew from 19.7% to 42.8% while the share of German-UScoauthored articles remained almost same.--------------------------------------Insert Table 12 about here.-------------------------------------

This is because German researchers collaborate extensively with researchers in otherEuropean countries. Thus the share of coauthored articles by region is consistent with theresults that European MNCs have much more extensive R&D network in other Europeancountries than Japanese. It is probable that the strong science base interweaving multipleEuropean countries contributes to the internationalization of R&D activities ofEuropeanMNCs.CONCLUSION

Prior research has suggested that the difference in the degree of internationalization of R&Dreflects the technological capability and size of home and host countries (Gerybadze and Reger,1999; Criscuolo, 2004). This study further investigates: (1) How components of AC differ byregion by looking into inventors addresses; (2) How organization of MNCs concerning R&Dpeople differ by region; (3) How national environments besides the technologicalcapabilityand size of home and host countries may hinder MNCs from transforming their organizationalcharacteristics mainly with respect to R&D people. Specifically, we looked into

threeenvironmental factors: (1) qualified R&D people (doctoral candidates and foreignstudents inuniversities) in each country; (2) availability of researchers with doctoral degrees who wereborn in the home country of MNCs and work in the US; and (3) international collaboration inthe field of basic science.The investigation of national environments indicates Japanese firms are more disadvantaged.First, there are fewer qualified researchers with doctoral degrees and foreign researchers whohave studied in Japan than in Germany. Second, there are fewer researchers withdoctoraldegrees who were born in Japan and work in the United States than those born inGermany.With regard to the international collaboration in the field of basic science, Japaneseresearchers have substantial linkage with US researchers, but the cooperation isheavily21/21concentrated on the US. This suggests Japanese MNCs may face difficulty in diversifyingtheir R&D activities in other countries besides the US.Since these environmental factors are usually beyond control of MNCs, it provide

s animportant implication to the policy makers, especially those responsible for higher education.


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It may be more necessary for governments to encourage scientific collaboration with othernations as well as to increase graduates with doctoral degrees and foreign students in certainfields of technologies. It should allow MNCs to hire these R&D staff am improvetheircapability not only to develop technologies in the home country, but to absorb t

echnologicalknowledge from abroad.The major limitations of this paper are as follows. First, the relatively smallsample lowers thepower to investigate inter-correlations between some of the variables. In addition, for moreaccurate analyses, it may be necessary to analyze the data controlled by technology andcountry although it is controlled by industry and region in this study. The products that utilizethe patent inventions vary from technology to technology as well as the period from R&D

investment to inventions. It will require a much larger patent data set and sample size, whichwe did not have for this study as firms that can afford to establish corporate R&D centers inthe US are very much limited. The results are, however, significant for some variables andallowed us to test the hypotheses.The second limitation is the time lag between the questionnaires conducted in 2002 andpatent filed in 1995-1999 though some questionnaires asked about the situation in 1997.Organizational characteristics in the late 1990s may have evolved toward 2002. Therefore, the

statistical correlations between the two data may have some bias because of thetimedifference. However, common characteristics seem to persist for a very long timeinorganizations, particularly laboratories, as interviewees acknowledged. Hence this problemmay not be as serious as other types of time lag.The third limitation is that questionnaires were made to corporate R&D centers whereaspatent data were based on those filed by the whole company. Therefore, we need to be carefulin interpreting the results for this reason. Third, the interpretations of the meanings ofquestionnaire answers had to rely mainly on the information from the managers because offew empirical studies as this type. Although I used multiple answers and consulted multipleinformants to prove each organizational attribute of the four capabilities, there may be biasfrom the informants due to the lack of the existing research.22/22REFERENCESAlmeida, P. 1996. Knowledge Sourcing by Foreign Multinationals: Patent CitationAnalysis in the U.S.Semiconductor Industry. Strategic Management Journal, 17(Special Issue: Knowledg

e and theFirm): 155-165.Arai, S. 2006.

Absorptive Capability

of Multinational Companies: Japanese and


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European R&DManagement at home and in the United States. Unpublished Dissertation, Forthcoming,University of Oxford, Oxford, UK.Arai, S., & Barron, D. 2005.

Absorptive Capability

of Japanese and European Multinationals in theUnited States. Paper presented at the Academy of Management 2005 Annual meeting,

Hawaii,USA.Bartlett, C. A., & Ghoshal, S. 1998. Managing Across Borders. The TransnationalSolution. London,UK: Random House.Bergek, A., & Berggren, C. 2004. Technological internationalisation in the electro-technical industry: across-company comparison of patenting patterns 19862000. Research Policy, 33(9): 1285-1306.Cantwell, J., & Piscitello, L. 2000. Accumulating technological competence: Itschanging impact oncorporate diversification and internationalization. Industrial and Corporate Cha

nge, 9(1):21-51.Cohen, W. D., & Levinthal, D. A. 1990. Absorptive Capacity: A New Perspective onLearning andInnovation. Administrative Science Quarterly, 35(1): 128-152.Die Zeit, http://www.zeit.de/Eaton, J., & Kortum, S. 1999. International Technology Diffusion: Theory and Measurement.International Economic Review, 40(3): 537-570.Edler, J., Meyer-Krahmer, F., & Reger, G. 2002. Changes in the strategic management of technology:results of a global benchmarking study. R&D management, 32(2): 149-164.Edquist, C. (Ed.). 1997. Systems of Innovation. London, UK: Printer.

Frost, T. S. 2001. The geographic sources of foreign subsidiaries

innovations.Strategic ManagementJournal, 22(2): 101-123.Gambardella, A., Orsenigo, L., & Pammolli, F. 2000. Global Competitiveness in Pharmeceuticals. AEuropean Perspective: http://dg3.eudra.org/pharmacos/comdoc_doc.htm: the DirectorateGeneral Enterprise of the European Commission.Gassman, O., & von Zedtwitz, M. v. 1999. New concepts and trends in international R&D organization.Research Policy, 28(2-3): 231-250.23/23Gerybadze, A., & Reger, G. 1999. Globalization of R&D: recent changes in the management ofinnovation in transnational corporations. Research Policy, 28(2-3): 251-274.Jungmittag, A., Meyer-Krahmer, F., and Reger, G., 1999, Globalization of R&D andTechnology Markets- Trends, Motives, Consequences. In Globalization of R&D and TEchnology Markets..Heidelberg: Physica-Verlag.Kogut, B. 1991. Country capabilities and the permeability of borders. StrategicManagement Journal,12: 33-47.Kuemmerle, W. 1999. Foreign direct investment in industrial research in the pharmaceutical and

electronics industries - results from a survey of multinational firms. ResearchPolicy, 28(2-3):179-193.


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Lam, A. 1997. Embedded firms, embedded knowledge: problems of collaboration andknowledgetransfer in global cooperative ventures. Organization Studies, 18(6): 973-996.Lane, P. J., Koka, B., & Pathak, S. 2002. A Thematic Analysis And Critical Assessment Of AbsorptiveCapacity Research. Paper presented at the Academy of Management Proceedings.Lim, K. 2004. The relationship between research and innovation in the semiconduc

tor andpharmaceutical industries (19811997). Research Policy, 33(2): 287-321.Narula, R. 2002. Innovation systems and

inertia

in R&D location: Norwegian firms and the role ofsystemic lock-in. Research Policy, 31: 795-816.Nelson, R. R. (Ed.). 1993. National Innovation Systems. A Comparative Analysis.New York, USA:Oxford University Press.Organisation for Economic Co-operation Development (OECD), 2001, International Mobility of theHighly Skilled, Paris, France.Organisation for Economic Co-operaion and Development (OECD), 2002, OECD Outlook

s, Paris,France.Okada, Y. 1992. Tokkyo Seido no Ho to Keizaigaku (The Law and Economics of the Patent System),Staff paper, Shinshu University. Shinshu.Patel, P., & Pavitt, K. 1991. Large Firms in the Production of the World

s Technology: An ImportantCase of "Non-Globalisation". Journal of International Business Studies, 22(1): 1-21.Patel, P., & Pavitt, K. 1997. The technological competencies of the world

s largest firms: Complex andpath-dependent, but not much variety. Research Policy, 26(2): 141-156.Porter, M. E. 1990. The competitive advantage of nations. Harvard Business Revie

w, March-April:73-93.Rosenberg, N. 1990. Why do firms do basic research (with their own money)? Research Policy, 19(2):165-174.Shushoku-shiki-hou, http://job.toyokeizai.co.jp/Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic Capabilities and Strategic Management. Strategic24/24Management Journal, 18(7): 509-533.Veugelers, R. 1997. Internal R & D expenditures and external technology sourcing. Research Policy,26(3): 303-315.von Hippel, E. 1994. "Sticky Information" and the Locus of Problem Solving: Implications forInnovation. Management Science, 40(4): 429-439.von Zedtwitz, M., & Gassmann, O. 2002. Market versus technology drive in R&D internationalization:four different patterns of managing research and development. Research Policy, 31(4): 569-588.World Investment Report, 2002, World Bank, Washington D.C., USAYakusiji, T., 1989, Technohegemony, Chuou-kouron-sho, Tokyo, Japan.25/25TABLE 1Companies in sample

Country Electronics/Engineering Automotive Pharmaceuticals Chemicals TotalJapan Canon, Epson, Fujitsu,Fuji-Xerox, Hitachi,


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Mitsubishi Electric, NEC, NTTDoCoMo, OKI, OMRON,Matsushita Electric Industrial,Sharp, Sony, Sumitomo ElectricIndustries, Toshiba (15)Honda, Nissan, Toyota (3) Eisai, Fujisawa,Takeda, Yamanouchi

(4)HitachiChemicals,MitsubishiChemicals,SumitomoChemicals (3)25Korea Samsung, LG (2) 2Germany Bosch, Infineon, Siemens (3) BMW, DaimlerChrysler,Volkswagen (3)Bayer,

Boehringer-ingelheim,Merck, Schering (4)Bayer, BASF,Degussa,Merck (4)13Switzerland ABB (1) Roche, Novartis (2) 3Netherlands Philips (1) 1Finland Nokia (1) 1Sweden Ericsson (1) 1Total 24 6 10 7 47TABLE 2Companies in sample

Country Electronics/Engineering Automotive Pharmaceuticals Chemicals TotalJapan Canon, Epson, Fujitsu,Mitsubishi Electric, NTTDoCoMo, Matsushita ElectricIndustrial, Sharp, Sony,Sumitomo Electric Industries (9)Honda, Toyota (2) Eisai, Fujisawa,Takeda,Yamanouchi (4)Hitachi Chemicals,MitsubishiChemicals,SumitomoChemicals (3)18Germany Bosch, Infineon, Siemens (3) BMW, DaimlerChrysler(2)Bayer, Merck,Schering (3)Bayer, Degussa,Merck (3)11Switzerland ABB (1) Roche, Novartis (2) 3Netherlands Philips (1) 1Total 14 4 9 6 33

26/26TABLE 3Means by Region and Industry


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Industry(Number of sample firms)Turnover(US$ million)Sales in US(US$ million)Employees RDE (R&D

expenditure)(US$ million)RDI(R&Dintensity)Asia Electronics & Automobile (16) 37827.3 9504.2 112083.1 2015.9 0.055Chemicals& Pharmaceuticals (7) 6715.4 1007.9 17137.3 569.5 0.100Europe Electronics & Automobile (6) 47075.0 10697.2 176318.9 3003.4 0.092Chemicals& Pharmaceuticals (7) 13453.4 4357.4 56984.4 1374.8 0.115All 30892.8 7397.6 104347.2 1874.2 0.082Industry(Number of sample firms)

USM (%) ACUS USCC USOL USR(%)USE(%)Japan Electronics & Automobile (16) 19.4 0.028 0.003 0.024 4.6 19.3Chemicals& Pharmaceuticals (7) 19.1 0.066 0.017 0.041 4.7 5.9Europe Electronics & Automobile (6) 22.9 0.157 0.017 0.098 9.0 6.8Chemicals& Pharmaceuticals (7) 31.1 0.779 0.049 0.237 16.1 6.4All 22.6 0.221 0.018 0.088 8.1 12.6Sources: company reports (Turnover, sales in US, employees, RDE and RDI) and survey to individual firms (USRand USE). Turnover, sales in US, employees, RDE and RDI are based on the consolidated data as of 2002.

USR: Share of R&D people if a firm in corporate R&D centers in USUSE: Share of expatiates from the home country in corporate R&D centers in US27/27Table 4Parameter estimates capabilities comprising AC (Japan = 1, Europe = 0)Region (Japan = 1, Europe = 0)Acquisition capability (ACUS)-.350*(.177).407Combinative capability (USCC)-.021*(.010).381Independence capability (USOL)-.123***(.041).510Utilization capability (USM)-.013(.044).336First row is unstandardized coefficient; Second row is standard error;Third row is R square.* P< .1;

** P< .05*** P< .0128/28


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Table 5Parameter estimates for share of R&D people (Japan = 1, Europe = 0)Region (Japan = 1, Europe = 0)Foreign-1.649***(.566).377

Foreign hired in the last three years-2.295***(.599).525Female0.189(.304).490New staff without working experience0.463(.569).070

Foreign degree-1.647***(.568).410Postdoctoral experience-2.380***(.584).588Doctoral degree-1.826***(.547).560First row is unstandardized coefficient; Second row is standard error;

Third row is R square.* P< .1** P< .05*** P< .0129/29Table 6General statistics of the US, Germany and JapanUS Germany JapanGDP 5563 1967 3885GDP per capita 31592 32813 44457Population (1000) 284822 82340 127291Total employment (1000) 149298 38911 66222Total researchers 1261227 264384 675898Source: OECD MSTINote: As of 2001GDP and GDP per capita are constant1995 US$ billion30/30Table 7Share of GDP and Employment by IndustryUS Germany JapanGDPFirst industry 1.6 1.1 1.7Second industry 25.2 31.9 37.1(Manufacturing) (17.0) (23.6) (24.3)Third industry 73.9 60.9 63.1

EmploymentFirst industry 2.7 2.9 5.3Second industry 24.2 34.3 33.0


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(Manufacturing) (16.1) (23.7) (22.0)Third industry 73.1 62.7 61.1Source: Doitsu Touitsugo no 10 Nen (Germany, 10 years after the Unification)(2003)As of 1997Table 8Share of patenting activities at home and in the US using USPTO granted 1989-200

0.S eCcthoerm icals EU MN6C3s.A4 t0 %h omJeP N 9M8N.4C0s% EU 2M3N.9CI0ns% t heJ PUNS M1N.3C0s% EPMlhoeatcrotmrr iacvcaeelh u&ict lieeclsae lcst ronics 835962...746000%%% 99-49 ..0400%% 23538...517000%%% -04 ..3800%% Source: Criscuolo, 200484 European and Japanese MNCs listed in the Fortune 500.31/31Table 9Number of Doctoral Degree Obtained by FieldUS Germany JapanNumber of doctoral degree obtained by fieldNatural science 9816 5974 1586Math/com science 1832 956 NA

Agricultural science NA 472 1241Engineering 5502 2220 3864Number of doctoral degree obtained by field per 10,000Natural science 0.344 0.726 0.125Math/com science 0.064 0.116 NAAgricultural science NA 0.057 0.098Engineering 0.193 0.270 0.312Source: NSF Science and Engineering Indicators 2004Note: Japanese data include thesis doctoratesNote: As of 2001Table 10Number of Doctoral Degree Obtained in BiologyUS Germany Japan

Number of doctoral degree obtained in biology1990 4328 3054 3011995 5376 3501 3842000 5855 2737 560Number of doctoral degree obtained in biology per 10,0001990 0.173 0.384 0.0251995 0.205 0.429 0.0312000 0.208 0.333 0.044Source: Japanese and US data from Science Based industries; German data fromGerman Ministry of Education and ResearchNote: Japanese data include thesis doctorates32/32Table 11Foreign-born US residents with S&E doctorates, by place of birthNumber ofResidentsChina 37,900India 30,100United Kingdom 13,100Taiwan 10,900Canada 8,400Germany 7,200Iran 4,800Former Soviet Union 4,600Korea 4,500

Philippines 3,400Poland 3,200Japan 2,800


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Argentina 2,700Other foreign born 58,400Source: NSF Science and Engineering Indicators 2004Note: Japanese data include thesis doctoratesNote: As of 2001Table 12Foreign-born US residents with S&E doctorates by place of birth

Internationally US share of internationallyCoauthored articles Coauthored articlesYear 1994 2001 1994 2001US 15.8 23.2 NA NAGermany 30.6 41.7 30.2 29.9Japan 13.7 19.7 19.7 42.8Source: NSF

Science and Engineering Indicators - 2004

Appendix table 5-44Note: As of 200133/33Figure 2Acquisition ofUS technology

CombinationUtilization ofUS technologyIndependenceFigure 1Independence capabilityAcquisition capability Combinative capabilityUtilization capability3.835***.042.027.0045.927* 1.352*

34/34U S HOME0.028 (100%)Combination0.003 (10.7%)Combination0.001 (3.6%)OTHERAutonomy0.024 (85.7%)Figure 3 Japanese/Korean Engineering/Electronics/AutomobileShare of patents concerned in all (share of combination and autonomy in ACUS)Share of patents concerned in all (share of combination and autonomy in ACUS)Autonomy0.098 (62.4%)U S HOME0.157 (100%)Combination0.017 (10.8%)Combination0.042 (26.8%)OTHERFigure 4 European Engineering/Electronics/Automobile35/35Figure 5 Japanese and Korean Pharmaceuticals and Chemicals

U S HOME0.066 (100%)Combination


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0.017 (25.8%)Combination0.008 (12.1%)OTHERAutonomy0.041 (62.1%)Share of patents concerned in all (share of combination and autonomy in ACUS)

Share of patents concerned in all (share of combination and autonomy in ACUS)HOME U S0.779 (100%)Combination0.049 (6.3%)Combination0.493 (63.3%)OTHERAutonomy0.237 (30.4%)Figure 6 European Pharmaceuticals and Chemicals36/36

Figure 7 Foreign Direct Investment in R&D in the USUSJapanGermanySwedenSwitzerland Netherlands22024355166551336633926497626

1256226359 18585Source: NSF Science and Engineering Indicators - 2004Note: Sum of expenditure from 1995 to 2000. Millions of current US$37/37APPENDIX 1 Definitions and Measures of ConstructsKey constructsDefinitionsMeasuresAcquisition capability(ACUS)Capability of a firm to acquire USknowledge in the US(Number of patents to which USpeople contributed) / (Total number ofpatents granted to firm)combinative capability(USCC)Capability of a foreign firm to combineUS knowledge with their home countryknowledge(Number of patents to which US andhome people together contributed) /(Total number of patents granted tofirm)

Independence capability(USOL)The degree of autonomy of a US


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subsidiary to invent in the USindependently from the headquarters(Number of patents to which only USpeople contributed) / (Total number ofpatents granted to firm)Utilization capability(USM)

US market sales as a fraction of the totalsales of a firm(US market sales of a firm) / (totalmarket sales of a firm)Size of R&D (RDE)Total R&D expenditure of a firmTotal R&D expenditure (US$)R&D intensity (RDI)Ratio of R&D expenditure to sales(Total R&D expenditure)/(Total sales)* Patents are those first filed between 1995 and 1999 and granted at WIPO, EPO,USPTO, or national

patent offices where parent firms are located.* Patents granted at Japanese Patent Office are reduced by a factor of 4.9.* Turnover, R&D expenditure, number of people are as of 200238/38APPENDIX 2 Definitions and Measures of ConstructsSource: Stanford University. Own calculation.Note: As of 2002Stanford Unviersity: by country (number of students), Autumn 2002Total (graduate and undergraduate) Undergraduates Graduates1. China (553) 1. Singapore (57) 1. China (407)2. Republic of Korea (379) 2. Canada (42) 2. India (319)3. India (375) 3. India (20) 3. Republic of Korea (316)4. Canada (294) 4. Republic of Korea (19) 4. Canada (204)

5. Japan (186) 5. China (11) 5. Taiwan (102)6. Germany (166) 6. Malaysia (9) 6: France (89)7. Singapore (140) 6. Brazil (9) 7. Japan (84)8. Taiwan (136) 6. Germany (9) 8. Turkey (83)8. France (136) 6. UK (9) 9. Singapore (77)10. Thurley (95) 10. Hong Kong (8) 10. Mexico (56)11. Mexico (73) 10. Pakistan (8) 11. Germany (48)12. Israel (66) 10. Philippines (8) 12. Hong Kong (47)13. Italy (63) 10. Mexico(8) 13. Iran (40)14. Hong Kong (59) 10. Bulgaria (8) 14. Israel (40)15. Tailand (47) 15. Japan (7) 15. Tailand (38)15. UK (38)

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