IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 43, NO. 1, FEBRUARY 1996 41

Are Large Firms Internationalizing the Generation of Technology? Some New Evidence

Pari Pate1

Abstract- Internationalization of technology remains a sub- ject of considerable interest to analysts and policy makers in the 1990’s. This paper is a modest attempt at providing some new empirical observations for debate and discussion on one dimension of the subject, namely, the nature and extent of the production of technology undertaken by large firms outside their home base. The evidence, based on the US patenting activities of the world’s largest 539 firms (based in 13 countries and covering 16 product groups), shows that for an overwhelming majority of them technology production remains close to the home base. It also shows that firms devoting a large proportion of their resources to technology are amongst the least internationalized. When these firms do go abroad, there is no systematic relationship between their relative presence in a technical field and the relative strength of the host country. The analysis points to the dangers of generalizing on the basis of anecdotal evidence from a small sample of firms from a particular country or sector.

I. INTRODUCTION

HE purpose of this paper’ is to throw new empirical T light on the nature and extent of the tecHnologica1 ac- tivities carried out by large firms outside their home countries. The subject of internationalization of technology (or techno- globalism) has received increasing interest among national and international policy makers [ 121-[ 141, as well as academics [2], [3], [SI-[7], [18]. At the same time there appears to be a lack of systematic evidence to enable a proper examination of the subject. As one recent review [7, p. 2331 puts it

. . . internationalization of R&D and technology is a phenomenon with many dimensions but with-after all-few available observations so far . . . leaving ample room for uncertainty and speculation. This paper, in line with our earlier work [lS], [16], is a

modest attempt at providing some new empirical observations for debate and discussion on one dimension2 of the subject, namely, the nature and extent of the production of technology undertaken by large firms outside their home base. It is based on the analysis of detailed information on the US patenting activities of the world’s largest 539 firms (described in more

Manuscript received January 1996. Review of this manuscript was arranged

The author is with the Science Policy Research Unit, University of Sussex,

Publisher Item Identifier S 0018-9391(96)02832-5.

by Special Issue Editor R. Balachandra.

Falmer, Brighton, BN1 9RF, UK.

This paper is based on research done at the Centre for Science, Technology and Energy Policy (STEEP), established by the UK Economic and Social Research Council (ESRC) in the Science Policy Research Unit (SPRU) at the University of Sussex. It has benefited greatly from comments by K. Pavitt and two anonymous referees of this journal.

*For a review of other dimensions of the debate concerning the globalization of technology, see [l].

TABLE I THE DISTRIBUTION OF THE 539 LARGE FIRMS IN THE

SAMPLE BY NATIONAL~Y AND PRINCIPAL PRODUCT GROUP

Product Group Europe Japan North America** Total Chemicals 20 23 28 71 Pharmaceuticals Mining & Petroleum Textiles etc. Rubber & Plastics Paper & Wood Food Drink & Tobacco Building Materials Metals Machinery Electrical Computers Instruments Motor Vehicles Aircraft

7 4 14 7 3 5 3 2 8 6 9 11 6 1 9 6

20 13 23 14 13 17 4 2 1 10

14 18 7 0

14 20

7 4

17 17 8 9

16. 29 28 11 10 9

12

25 41 15 9

31 37 15 24 49 66 58 17 21 41 19

Total 161 139 239 539 **225 American firms and 14 Canadian firms Source: SPRU Large Firms Database

TABLE I1 A COMPARISON OF THE GEOGRAPHIC DISTRIBUTION OF

FOREIGN R&D AND PATENTING ACTIVITIES OF us FIRMS*

Percentages R&D (1989) US Patents (1985-1990) UK 23.7 21.7 Germany 21.2 28.3 Canada 13.0 13.0 France 7.7 8.4 Japan 6.9 6.9 Netherlands 5.1 3.1 Belgium 4.5 4.6 Italy 4.2 4.0 Australia 2.6 0.7 Ireland 1.9 0.2 Spain 1.6 0.7 Brazil 1.3 0.2 Switzerland 1.0 3.7 Mexico 0.5 0.2 Sweden 0.5 0.8 Other Countries 4.3 3.6 Total 100.0 100.0 *The patent data are for the 255 large US firms in our database The R&D data refer to all US firms covered by the NSF R&D survey Sources: NSF Science Indicators 1993 and SPRU Large Firms Database

detail in Section 11). In particular, by analyzing the country address of the inventor of each patent, we are able to consider three sets of issues:

1) the extent of geographic dispersion of technological activities of large firms together with any changes over time,

0018-9391/96$05.00 0 1996 IEEE

42 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 42, NO 1, FEBRUARY 1996

TABLE IJl GEOGRAPHIC DISPERSION OF LARGE FIRMS’ US PATENTLNC A m m BY NATIONAL~Y AND PRODUCT GROUP: 1985-1990

Number of Firms Only in the Home Country In one or two “Foreign” Countries In more than two “Foreign” Countries Product Group European Japanese American All European Japanese American All European Japanese American All Chemicals 5 21 15 41 I 2 6 15 8 0 I 15 Pharmaceuticals 1 4 3 8 3 0 7 10 3 0 4 I Mining & Petroleum 6 I 10 23 5 0 7 12 3 0 3 6 Textiles etc 1 5 I 13 2 0 0 2 0 0 0 0 Rubber & Plastics 1 2 2 5 2 0 1 3 0 0 1 I Paper & Wood 5 6 14 25 3 0 3 6 0 0 0 0 Food I 11 14 32 1 0 3 4 1 0 0 1 Drink & Tobacco 4 1 5 10 1 0 2 3 1 0 1 2 Building Materials 4 4 5 13 4 2 3 9 1 0 1 2 Metals 11 12 13 36 7 1 2 10 2 0 1 3 Machinery 6 14 19 39 10 0 6 16 I 0 4 11 Electrical 2 11 10 23 6 6 13 25 5 0 5 10 Computers 2 2 5 9 2 0 1 3 0 0 5 5 Instruments 0 5 5 10 1 5 2 8 0 0 3 3 Motor Vehicles 8 14 6 28 4 4 0 8 2 0 3 5 Aircraft 6 0 10 16 1 0 0 1 0 0 2 2 Total 69 119 143 331 59 20 56 135 33 0 40 1 3 Source SPRU Large Firms Database

2) the relationship between country strengths in technology and the extent of the involvement of foreign firms, and

3) the relationship between R&D intensity and the extent of internationalization.

We shall show that: 1) firms are not technologically active in a wide range of

different countries simultaneously, 2) there is no systematic relationship between the coun-

try’s sectors of technological advantage and the relative presence of foreign firms in those sectors, and

3 ) the most internationalized firms are not the ones that are the most R&D intensive.

Before turning to the results in Section 111, Section I1 outlines the main elements of the database used in looking at these issues.

11. DATA SET

The data set has been compiled from information supplied by the US Patent Office on the name of the company, the technical class, and country of origin of the inventor for each patent granted in the United States from 1969 to 1990. The main difficulty with the primary data is that many patents are granted under the names of subsidiaries and divisions that are different from those of the parent companies and are therefore listed separately. In addition the names of companies are not unified in the sense that the same company may appear several times in the data, with a slightly different name in each case.

Consolidating patenting under the names of parent compa- nies can only be done manually on the basis of publications like Who Owns Whom. In the current study we have unified the names and consolidated the data for more than 500 of the world’s largest firms in terms of sales for the year 1988. For each firm we have also gathered information, from published sources (Fortune, Disclosure, and Company Reporting) on R&D expenditures, sales, employment, country of headquarters, and principal product group.

In Table I we list the numbers of large firms in our database according to their home country and principal product group.

North American firms accounted for 45% of the sample, European firms 30%, and Japanese firms 25%. Within Eu- rope, the largest contributors were the United Kingdom (48), followed by Germany (42) and France (23). In terms of the industrial distribution, 21 % had machinery and metal goods as their principal product group, 18% had chemicals and pharmaceuticals, and 14% electrical (including electronics) and computing machinery.

In an earlier paper [16] we described the main advantages and disadvantages of using patent statistics as a measure of technological activities. Briefly, their main advantages over other measures, such as R&D expenditures, are that they are available over a.long period of time and can be broken down in great statistical detail according to geographic location and technica1 area. Their main disadvantage is that they do not satisfactorily measure two important areas of technology, namely, software and biotechnology.

Apart from the data on US patenting, the only other sys- tematic evidence of the extent of internationalization of tech- nological activities of firms is that on self-financed R&D expenditures of US firms and their foreign subsidiaries col- lected by the US National Science Foundation. In Table I1 we compare the geographic distribution of US firms’ foreign R&D expenditures with the geographic origin of the US patents granted to the US based firms in our da t aba~e .~ Both of the measures show the importance of Germany, the United King- dom, and Canada in American firms’ foreign technological activities. There are some small differences between the two measures: the share of patenting is higher than the share of R&D in Germany, and the share of R&D in the Netherlands and in Ireland is higher than the share of patenting. However, statistically the two distributions are almost identical, with a correlation coefficient of 0.97, allowing us to place some

31t should be noted that the two data sets involve different sets of firms: the NSF R&D survey almost certainly covered more firms than those covered in our large firm patenting data base (225). Nonetheless, the basis for comparison between R&D and patenting is two strongly overlapping populations of large firms.

PATEL: ARE LARGE FIRMS INTERNATIONALIZING THE GENERATION OF TECHNOLOGY? 43

TABLE IV CHANCES IN THE GEOGRAPHIC DISPERSION OF LARGE FIRMS' us PATENTING ACTIVITIES BY NATIONALITY AND PRODUCT GROUP: 1969-1974 TO 1985-1990

Increasing Number of Firms Decreasing Stable Product Group European Japanese American All European Japanese American All European Japanese American All Chemicals 3 2 9 14 9 20 10 39 8 1 9 18 Pharmaceuticals Mining & Petroleum Textiles etc. Rubber & Plastics Paper & Wood Food Drink & Tobacco Building Materials Metals Machinery Electrical Computers Instruments Motor Vehicles

0 0 1 0 0 0 1 2 1 5 3 1 0 3

0 0 0 0 0 0 0 1 0 0 0 0 1 0

2 4 0 1 2 1 2 1 3 6 I 2 1 2

2 3 4 10 1 1 1 2 2 5 1 8 3 3 4 5 4 15

11 10 10 6 3 2 2 0 5 6

4 I 5 2 6

11 1 3

12 14 12 2 6

14

6 13 4 10 27 4 I 13 1 1 5 1

13 24 3 15 34 1 4 8 2 4 12 2

11 38 4 15 39 8 11 29 4 5 9 1 I 13 1 6 26 5

0 6 10 0 6 10 0 0 1 0 2 3 0 2 5 0 1 2 0 2 4 2 4 8 1 2 7 0 8 16 5 10 19 0 4 5 3 2 6 4 1 10

Aircraft 1 0 0 1 5 0 10 15 1 0 2 3 Total 21 4 43 68 90 119 135 344 33 16 61 127 Source: SPRU Large Firms Database

confidence in the results reported below which are based on patenting activities alone.

111. INTERNATIONAL LOCATION OF TECHNOLOGICAL ACTIVITIES: RESULTS OF THE ANALYSIS

A. Patterns and Trends of Geographic Dispersion

One of the claims of some recent studies on internationaliza- tion of technology [2], [3], [6], [lo], [ 1 I], [ 141 is that firms are locating their technological activities in an increasing number of countries. The evidence is usually based on case study material for individual firms (e.g., using IBM, Glaxo, or ABB as examples) or particular industries (e.g., pharmaceuticals) or particular countries (e.g., Sweden). Our data set enables us to systematically examine this claim for firms in a variety product groups based in a range of countries.

Table I11 shows the number of firms, according to their nationality and principal product group that were techno- logically active4 in one or more of 30 different countries in the period 1985-1990. More than 60% of the sample (331 firms) were active only in their home country and slightly more than 13% (73) were active in more than two foreign locations. The table points to some major differences between nationalities and, to a lesser extent, between product groups. A vast majority of the Japanese companies (86%) were only active in Japan, whereas more than half of the of European firms and 40% of the American firms were active outside their home countries. There is some support for the notion (implicit in much of the literature) that computer and pharmaceutical firms are amongst the most internationalized in their technological activities: around 30% of the firms in each of these two product groups were active in more than two foreign locations.

4A company is deemed to be active in a particular country if it had six or more patents in 1985-1990 (i.e., one patent per year) with the address of the inventor in that country.

However the evidence that firms are increasingly locating their technological activities in different countries is rather weak. In Table IV we show the changes in the number of countries that each of the 539 firms was active over the periods 1969-1974 and 1985-1990? Nearly two-thirds of the sample remained stable over the period, with 13% active in fewer countries than in the earlier period and 23% active in more. The differences between nationalities and product groups noted above reappear: European firms became more geographically disperse in terms of their technological activities compared to the Japanese and American firms, as did firms in pharmaceuticals, electrical-electronics, and computers.

B. The Role of Foreign Firms in National Technological Advantage

In this section we consider the relationship between the sectoral patterns of technological advantage and the role of foreign firms in some of the leading OECD countries. There is the suggestion [31, [6] that large firms are now attracted to different countries according to the technologi- cal strengths of those countries. If this were the case then what we should observe in terms of our data is that for a particular country, nonnational (or foreign) firms should be relatively more active in areas of technological strength of that country and relatively less active in its areas of technological weakness.

In Tables V-VI1 we examine the sectoral patterns of tech- nological advantage for the three leading R&D performing countries in the world-Germany, Japan, and the United States-together with the share of patenting attributable to all the nonnational firms in our sample in each country. The 34 technology classes used here have been constructed on the basis of the US patent classification. For each class, we have

5Given the way in which we have consolidated firms (see Section 11), we do not capture any of the changes in the number of countries in which firms were active which may be due to mergers and acquisitions.

44 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 42, NO. 1, FEBRUARY 1996

TABLE V

FOREIGN FIRMS IN GERMANY: 1985-1990 AREAS OF RTA* AND THE ACTIVITIES OF

Share of non- RTA German large firms Technical Area

Bleaching, dyeing and disinfecting 2.42 8.7 Agricultural chemicals Organic chemicals Nonelectrical specialized ind. equip. Road vehicles and engines General nonelectrical ind. equip. Metallurgical and metal working equip. Inorganic chemicals Assembling and material handling app. Plastic & rubber products Power plants App. for chemicals, food, glass etc. Induced nuclear reactions Aircraft Chemical processes Drugs and bioengineering Miscellaneous metal products Metallurgical and metal treatment proc. Instruments and controls Other transport equip. (exc. aircraft) General electrical iud. apparatus Materials (inc glass & ceramics) Electrical devices & systems Telecommunications Food & tobacco (proc. & prod.) Dentistry & surgery Textile, clothing, leather, wood products Other (Ammunition and weapons, etc.) Photography and photocopy Semiconductors Image and sound equipment Calculators and computers, etc. Mining and wells: mach. and proc.

1.71 4.1 1.57 5.3 1.51 7.1 1.42 6.1 1.39 18.7 1.38 10.1 1.32 3.4 1.31 7.4 1.26 6.7 1.25 21.7 1.24 5.5 1.20 33.9 1.19 3.0 1.08 7.3 1.07 6.7 0.94 11.7 0.93 4.3 0.91 12.2 0.86 11.2 0.86 12.7 0.85 13.4 0.85 16.4 0.79 20.0 0.72 15.5 0.70 5.2 0.64 5.9 0.61 4.1 0.57 8.4 0.54 20.9 0.53 27.0 0.50 22.3 0.49 10.0

Hydrocarbons, mineral oils, fuels etc. 0.41 12.8 “See footnote six for a definition of RTA

calculated an index of revealed technology advantage (RTA)6 in 1985-1990 to assess areas of each country’s strength and weakness. At first sight there seems to be some support for the hypothesis that foreign firms are attracted to country in its areas of strength. For example in the case of Germany (Table V), they have high shares in two areas of German strength: nonelectrical machinery and power plants. However, Table V also shows that foreign firms have a relatively high share in electronics technologies (semiconductors, image and sound equipment, computers, and telecommunications) where Germany as a country is relatively weak.

Table VI confirms one of the results of our earlier analysis [15] namely that, in general, foreign firms have a very low level of activity in Japan. Their share is especially low in technical areas of greatest Japanese strength: vehicles and engines, photography and photocopy, and image and sound. In the United States (Table VII), foreign firms have relatively

6RTA is defined as a country’s or region’s (or firm’s) share of all US patenting in a technological field, divided by its share of all US patenting in all fields. An RTA of more than one therefore shows a country’s or region’s relative strength in a technology, and less than one its relative weakness. This measure correspond broadly to the measure of comparative advantage used in international trade analyses.

TABLE VI AREAS OF RTA* AND THE ACTIVITE OF FOREIGN FIRMS IN JAPAN: 1985-1990

Photography and photocopy Image and sound equipment Road vehicles and engines Calculators and computers Semiconductors Materials (glass and ceramics) General elect. ind. apparatus Instruments and controls Metallurgical and metal treatment proc. Plastic and rubber products Telecommunications Organic chemicals Chemical processes Electrical devices and systems Assembling and material handling app. Metallurgical and metal working equip. Power plants General nonelectrical ind. equip. Drugs and bioengineering Other transport equip. (exc. aircraft) App. for chemicals, food, glass, etc. Inorganic chemicals Agricultural chemicals Food & tobacco (proc. & prod.) Nonelectrical specialized ind. equip. Bleaching, dyeing and disinfecting Misc. metal products Induced nuclear reactions Textile, clothing, leather, wood products Hydrocarbons, mineral oils, fuels etc. Dentistry and surgery Other (ammunition and weapons) Aircraft

Share of non- RTA Japanese large firms 3.01 0.1

Technical Area

Mining & wells: mach. and proc. *See footnote six for a definition of RTA

2 23 2 21 168 1 60 1 42 135 1 25 1 23 121 0 97 0 94 0 89 0 86 0 85 0 82 0 82 0 80 0 12 0 72 0 72 0 68 0 68 0 59 0 57 0 51 0 45 0 45 0 45 0 41 0 41 0 27 0 12 0 09

0 6 0 2 0.8 0.7 0.5 0.4 0.7 0.4 0.4 0.5 1.4 0.9 2.9 0 7 0.6 0.0 0.2 2 4 2.4 0.0 0.0 3.2 0 2 0.4 0.7 0.6 2.9 0.0 1 0 0 9 0.5 2.7 2.1

high shares in chemical technologies (agricultural chemicals, organic chemicals, drugs, and bleaching and dyeing) where the United States has no particular technological advantage.

In Table VIE we examine the relationship between national patterns of technological advantage and the presence of foreign firm more systematically by looking at the Spearman rank correlation coefficient between the two measures used in Tables V-VI1 across 12 countries. There is only one country where the relationship is positive and significant, namely Belgium, where the share of foreign firms in general is very high. For four other countries-Canada, France, Germany, and the United States-the relationship is negative and significant, implying that foreign firms are relatively more active in areas of technological weakness rather than strength in these countries. For the remaining seven countries there is no relationship between the two measures.

C. R&D Intensity and Zntemationalization of Technology In earlier work [15] we showed that firms involved in

making products with the highest technology intensities were amongst those with the lowest degrees of internationalization of their underlying technological activities: those producing aircraft, instruments, motor vehicles, computers, and other

PATEL: ARE LARGE FIRMS INTERNATIONALIZING THE GENERATION OF TECHNOLOGY? 45

TABLE VI1 AREAS OF RTA* AND THE ACTIVITIES OF FOREIGN FIRMS IN USA: 1985-1990

Share of non- RTA US large firms Technical Area

Mining & wells: mach. & proc. Hydrocarbons, mineral oils, fuels etc. Dentistry & Surgery Other (ammunitions & weapons, etc.) Aircraft Textile, clothing, leather, wood products Induced nuclear reactions Food and tobacco (proc. & prod.) Electrical devices and systems Other transport equip. (exc. aircraft) Chemical processes Telecommunications App. for chemicals, food, glass, etc. Power plants Inrganic chemicals Agricultural chemicals Drugs & bioengineering Calculators and computers Semiconductors Metallurgical & metal working equip. Nonelectrical specialized ind. equip. General elect. ind. apparatus Organic chemicals Materials (glass and ceramics) Assembling & material handling app. Instrnments and controls General nonelectrical ind. equip. Metallurgical & metal treatment proc. Plastic & rubber products Bleaching, dyeing and disinfecting Image and sound equipment Road vehicles & engines

1.45 2.8 1.39 3.6 1.30 1.4 1.30 1.1 1.29 0.6 1.23 0.8 1.18 1.5 1.12 1.5 1.10 7.6 1.08 2.8 1.04 5.5 1.04 2.7 1.01 3.1 0.99 0.8 0.99 6.1 0.98 15.5 0.97 8.4 0.97 2.3 0.97 2.7 0.97 1.7 0.96 2.4 0.96 1.8 0.95 12.1 0.95 4.6 0.94 1.8 0.94 2.7 0.91 2.1 0.87 4.8 0.86 6.4 0.73 8.0 0.72 4.2 0.55 2.9

Photography and photocopy 0.5 1 4.5 *See footnote six for a definition of RTA

TABLE VI11 RANK CORRELATIONS OF RTA's OF COUNTRY AND

SHARgS OF NONNATIONAL LARGE FIRMS: 1985-1990 ~ ~

Rank Correlation Coefficients Belgium 0.452* Canada -0.417* France -0.362* Germany -0.355* Italy 0.229

Netherlands 0.045 Norway 0.233 Sweden 0.036

Japan -0.215

Switzerland -0.307 United Kingdom -0.085 United States -0.404*

"Denotes coefficient significant at the 5% level See footnote six for a definition of RTA

electrical products were all below the average for the pop- ulation of firms as a whole. In Table IX we report the result of testing this relationship at the level of the firm.

We use the share of foreign patenting for each firm as the dependent variable and regress it against R&D intensity &e., R&D expenditures as a proportion of sales) and a set of dummy variables to account for differences among product groups and regions (United States, Japan, and Europe). The

TABLE IX RELATiONSHIP BETWEEN SHARES OF FOREIGN PATENTING AND R&D INTENSITY: DEPENDENT VARIABLE = SHARE OF PATENTING OUTSIDE HOME COUNTRY (1985-1 990) . ....

Coefficient Std Error R&D Intensity (1988) -0.79* 0 12 Dummies Chemicals -0.12 2 91 Pharmaceuticals Mining Textiles etc. Rubber & Plastics Paper & Wood Food Drink & Tobacco Building Materials Metals Electrical Computers Instruments Motor Vehicles Aircraft Europe Japan R-Squared (Adj) F Statistic

7.78 -4.88 -0.99 -6.69 -5.10 -1.97 23.7*

9.78*

0.78

0.08

-4.98

-0.60

-6.11* - 12.07*

19.76*

0.36 6.82*

-6.82*

.

4.66 3.71 5.41 6.30 4.04 3.75 5.42 4.25 3.42 3.20 4.89 4.33 3.40 4.31 1.86 1.87

N 443 *Denotes significance at the 5% level

main point to note is that the coefficient on R&D intensity is negative and significant, indicating that firms that commit a higher proportion of their sales to R&D are also firms that produce relatively less of their technology outside the home country. This result does not fit with the arguments put forward by Cantwell [2] and Howells and Wood 1111 where they argue that technologically leading firms are at the forefront of internationalization.

The analysis of the dummy variables confirms some of the results of our earlier study [15] and ones reported above (Section 111-A): European firms are more internationalized compared to American firms and Japanese firms less so; drink and tobacco, building materials, and pharmaceutical7 firms are also relatively more internationalized and aircraft and motor vehicles firms less so.

Iv. MAIN FINDINGS AND CONCLUSIONS

There are three main empirical findings of this paper. The first is that there is no systematic evidence (i.e.,

covering a range of firms from different countries and product groups) to suggest widespread globalization of the production of technology-in the sense of firms being active in a wide range of different countries simultaneously. The evidence presented above, based on the US patenting activities of 539 firms (based in 12 countries and in 16 product groups), shows that majority of them are only active in their home country. In terms of trends only a small proportion of firms (23%) have increased the number of countries in which they are active since the early 1970's.

Second, for most countries there is no systematic relation- ship between the country's sectors of technological advantage

Although the coefficient on the pharmaceuticals dummy is not significant.

46 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 42, NO. 1, FEBRUARY 1996

and the relative presence of foreign firms in those sectors. Where there is a statistically significant relationship, it appears to be negative implying that foreign firms are relatively more active in the sectors where a country is relatively weak.

Third, the technologically most internationalized firms are not the ones that are the most R&D intensive.

These results confirm and reinforce our earlier findings [15], [16]. They are also consistent with the early literature on the internationalization of business, where Vernon [20] in particular argued that having established a new product or a new production process in the home market, firms would subsequently export and/or locate production facilities in foreign locations. This process would inevitably involve some foreign R&D activity mainly concerned with adapting the products (e.g., to account for differences in consumer tastes) and the production processes (e.g., to account for differences in the labor market) to suit the local market conditions. Thus the main purpose of foreign technological activities would be to support foreign production and to service the foreign market.

However, our results are not consistent with later work by Vernon [19], which suggests that in some (high technology) industries the product cycle has become highly compressed with firms engaged in programs of almost simultaneous inno- vations in several major markets. Neither do they confirm the most recent analyses [2]-[6], [8], [9] where there is a strong emphasis on the role of “supply-side” factors in the firms’ decisions concerning the location of R&D. In such analyses the firm is assumed to assess each country’s areas of technological strength and locate its own R&D accordingly. It is also assumed that the problems of coordination and control posed by having technological activities scattered in a number of different locations are solved by employing the latest advances in information and communications technology.

The main flaw in such analysis is that effective management of innovation, especially when launching a major new product, requires close physical proximity between those involved in the various stages of design and development and those involved in other functions of the firm, such as production engineering, marketing and sales. Recent changes at Ford and Chrysler, as reported in the Economist (April 23, 1994, pp. 86-91), have highlighted the importance of this: Ford is centralizing its design function after its attempt at the global design of the ContourMondeo.

Design teams in Michigan and Cologne were wired into the same computer. Yet the ContourMondeo project ran a year late and cost $6 billion. Too many regional managers managed, as before to get in the way.

And

Chrysler is reaping profits from having already re- organized its designers and engineers into “platform teams.” Anyone involved in a particular vehicle-from marketing to manufacturing-works out of the same office, eliminating potential design snags, speeding up product development, and sharply reducing costs.

In spite of these strong forces of geographic agglomeration, firms may still have other motives for locating some techno- logical activities outside the home country. First, they may be driven by political pressures in the form of threats of restric- tions on entry into foreign markets. This is a major factor in the decisions of firms from outside the European Community (EC) locating some R&D facilities within EC countries in the late 1980’s and early 1990’s [9]. Second, there is some survey evidence [ 181 to suggest that firms are increasingly creating “listening posts” in foreign countries to monitor technological developments and make contacts with centres of excellence in basic research. This is a major factor underlying the large European chemical and pharmaceutical firms’ decisions to locate some biotechnology research in the US.

These considerations are entirely consistent with the anal- ysis of the empirical evidence presented in this paper. Hence in our view large firms have technological activities that are nationally concentrated, with international “listening posts” and adaptive capabilities maintained through small foreign lab- oratories, frequent international exchanges, and proximity to an internationally outward looking system of higher education.

Thus the main conclusion of the analysis presented in this paper is that what happens in home countries still has a major influence on the technological activities of large firms. This influence is often exerted less through explicit government policies to influence technology, but more through indirect but pervasive influences of the competitive climate, financial system, educational and training institutions, and professional orientation of corporate managers [ 171. Undoubtedly these and other influences will evolve in future but will not diminish the importance of home countries in shaping the rate and direction of technological activities in large domestic companies.

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measurement and analyr and national level.

Pari Patel studied economics at the University of Sussex, UK, and the University of Bristol, Bristol, UK.

He is a Research Fellow at the Centre for Science, Technology, Energy, and Environmental Policy at the Science Policy Research Unit, University of Sussex, UK. He has more than 12 years experience of working on technology policy issues. Over the past five years, he has acted as a consultant/advisor to the UK government, European Commission, and the OECD. His main research interests are the

;is of technological activities at the firm, sectoral,