New insights on the role of location advantages in international innovation
Rajneesh Narula & Grazia D. Santangelo
#2011-045
This paper takes a closer look at the role of location advantages in the
spatial distribution of MNE R&D activity. In doing so, we have returned
to first principles by revisiting our understanding of L and O
advantages and their interaction. We revisit the meaning of L
advantages, and offer a succinct differentiation of L advantages. We
emphasise the importance of institutions, and flesh out the concept of
collocation L advantages, which play an important role at the industry
and firm levels of analysis. Just because a country possesses certain L
advantages when viewed at a macro-level, does not imply that these are
available to all industries or all firms in that location without
differential cost. When these are linked to the distinction between
location-bound and non location-bound O advantages, and we distinguish
between MNEs and subsidiaries it allows for a clearer understanding of
the MNE's spatially distributed activities. These are discussed here in
the context of R&D, which - in addition to the usual uncertainties faced
by firms - must deal with the uncertainties associated with innovation.
Although prior literature has sometimes framed the
centralisation/decentralisation, spatial separation/collocation debates
as a paradox facing firms, when viewed within the context of the
cognitive limits to resources, the complexities of institutions, and the
slow pace of the evolving specialisation of locations, these are in
actuality trade-offs firms must make.
JEL codes: F23, L52, O14, O19
keywords: FDI, MNEs, eclectic paradigm, collocation, country specific
advantages