Host Country R&D Determinants of MNE Entry Strategy: A Study of Ownership in the Automobile Industry

Abstract

We investigate how host country R&D influences ownership decisions made by technology-intensive multinational enterprises (MNEs) as they internationalize. We draw from institutional and resource based theories, as well as literature on agglomeration and clusters, and construct a unique dataset of 1324 foreign investments recorded by German automobile manufacturers between 2005 and 2012 for our empirical tests. We find that in host countries that are cluster-abundant there will be a greater likelihood that technology-intensive MNEs will adopt joint ventures over wholly-owned subsidiaries, and will more likely use a lower equity stake in any joint venture. We find partial support for the influence of other aspects of host country R&D, including innovation output and inward technology FDI. Various robustness tests and insights from selected cases provide further support. Importantly, findings demonstrate the importance of multi-dimensional characteristics of host country R&D over and above those such as market size, political stability and cultural distance that are more commonly utilized and discussed in the entry strategy literature. The findings have implications for host country policy as well as strategy-makers in MNEs seeking to compete on the basis of globalized R&D.