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In recent years, MNCs have been conducting strategic innovation activities
in emerging economies. Although, in the past, there were cases of MNCs
conducting R&D in developing countries, such innovation was mainly
related to adaptation of products and processes to the local conditions and/
or at most product development for local markets (i.e., variants based on
the parent’s technology). It is only since the mid-1980s that MNCs have
started carrying out strategic innovation, such as those relating to developing
products for global markets or mission-oriented basic research for
long-term corporate use in emerging economies, although the scale of such
operations is still small. Mainly only the MNCs dealing with new sciencebased
technologies (e.g., ICT, biotechnology and so forth.) have started
locating strategic innovation activities in emerging economies.
The primary driving forces for such a move by MNCs are both technologyrelated,
i.e., gaining access to R&D personnel; as well as cost-related, i.e., to
leverage the low-cost advantages in emerging economies; and market-related,
i.e., with the markets in emerging economies growing faster than those in the
industrialized world. It has become imperative to locate innovation activities
in these countries to better understand the needs and preferences of the consumers
and to develop innovative products for such markets (e.g., emerging
products for emerging markets). This is a new phenomenon and is signifi -
cantly different from developing products for the local market (based on the
parent’s technology) in the earlier era. The present situation requires performance
of more complex and advanced innovation activities, perhaps also not
performed by the parent company itself until now. Another important driving
force for locating R&D in emerging economies has been that the manufacturing
facilities of most industrial customers of MNCs are located in emerging
economies (e.g., China). They manufacture products for worldwide markets.
In order to capture this intra-industry (or B2B) business, it becomes necessary
to locate R&D centers in such locations to provide the customer with innovative
and timely solutions.
However, it should be remembered that at the global level the proportion
of R&D conducted in developing countries (including emerging economies)
by MNCs is still only marginal. Over two-thirds of MNCs’ R&D activities
are located within the industrialized world. It is often diffi cult to get an exact
252 Global Innovation in Emerging Economies
estimate of the R&D performed by MNCs outside their home countries. At an
average the internationalized corporate R&D ranges between 10 to 15 percent
of total R&D conducted by MNCs, although the fi gure is rising steadily. The
fi gure, however, is greater for MNCs based in small industrialized countries.
Of the limited R&D conducted overseas, the share of developing countries
would be only a small proportion, and this again depends on whether it is
measured on the basis of R&D expenditures or R&D personnel or proportion
of patents originating from innovation activities in developing countries.
Similarly, the fl exibility and the propensity for internationalization of R&D
vary between different sectors, with the new science-based technologies scoring
higher on both counts than the conventional technologies (Reddy 1997).
In addition, since the beginning of the new millennium (2000s), fi rms
based in emerging economies have started performing R&D to develop products
and services for the global markets (i.e., global innovation), putting them
in direct competition with incumbent MNCs in the industrialized countries.
In this effort, the emerging economy fi rms are being supported by their universities
and national research institutes, which help the fi rms with innovation
and technological activities (particularly in China).
This study, through empirical analysis (in-depth case studies), attempted to
show that the characteristic features of innovation performed in some developing
countries (which are called emerging economies) by both MNCs and local
fi rms are changing signifi cantly, making them attractive locations for more
R&D-related FDI. This means that something uncommon or unforeseen is
happening. What is it? Why is it happening? And what are its implications
for the corporations, host and home countries (the actors) involved? Although
when viewed from the perspective of all MNCs (or fi rms from emerging economies)
as a group or all developing countries as a block, such activities are
still marginal, when viewed from an individual actor’s perspective such developments
assume greater signifi cance. It may be pointed out here that in the
1970s, internationalization of production also started as a marginal activity,
with labor-intensive assembly activities relocated into low-cost countries, especially
the newly industrializing economies (NIEs––Hong Kong, Singapore,
South Korea and Taiwan). Starting with such low-tech activities of MNCs, the
NIEs today have built up strong skills in production engineering and are now
increasingly becoming locations for R&D activities. For instance, South Korea
and Taiwan are today the foremost countries in the world that have micromachining
capabilities (perhaps with the exception of Japan).