Do Subsidiaries of Foreign MNEs Invest More in R&D than Domestic Firms?

Despite the growing involvement of multinational enterprises (MNEs) in foreign-based research and development (R&D), there has been little research comparing subsidiaries of foreign MNEs to domestic firms. Subsidiaries of foreign MNEs enjoy advantages that help them compete against domestic firms. However, when deciding on R&D investments, these advantages exert competing influences on their R&D investment decision. On the one hand, better access to and transfer of knowledge and technologies from the MNE and other subsidiaries and centers of excellence may encourage the subsidiary of a foreign MNE to invest less in R&D relative to a domestic firm. On the other hand, better access to sources of capital through the MNE and other subsidiaries may induce the subsidiary to invest more in R&D in comparison to domestic firms. We find that subsidiaries of foreign MNEs invest less in total R&D than domestic firms. The reason is that they invest less in external R&D though similarly in internal R&D investments in comparison to domestic firms. These findings support the notion that the transfer of technology and knowledge from other parts of the MNE acts as a substitute for the purchase of external R&D, but that a subsidiary of a foreign MNE must nevertheless invest internally in R&D to complement the technology transferred from other parts of the MNE