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The Role of Multinationals in the Globalisation of Innovation - Essay Example

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This essay "The Role of Multinationals in the Globalisation of Innovation" will attempt to show the positive role multinationals have played in the globalization of innovation with more focus on the emerging economies.

 
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The Role of Multinationals in the Globalisation of Innovation
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?Discuss the role of multinationals in the globalisation of innovation. Globalization can be defined as “the act or process of globalizing the of being globalized; especially : the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets” Merriam-webster Multinationals can be defined as a company “having divisions in more than two countries Merriam-webster The fall of the iron curtain resulted in a great surge of multinational conglomerate making their mark felt in the world. This phenomenon has been attributed to the concept of globalization which has allowed these firms not only to be in monetary terms bigger than many states but also defy territorial boundaries. As stated in the 2002 article published by U.N. Conference on Trade and Development that 29 of the world top 100 economies in the world were multinational corporations rather than states. With such economic power, the dominance of multinationals as leaders in technological innovation and this can be seen by the fact that 98% of the expenditure on Research and Development (R&D) by the 700 top R&D spenders, is done by the multinationals (Castellani and Zanfei 2005); the magnitude of the statistics can be fully comprehended when we see that the R&D expenditure of few major multinationals is more than the expenditure of some countries. This paper will attempt to show the positive role multinationals have played in the globalization of innovation with more focus on the emerging economies. Section 1 of the paper will deal with how innovation activities take place in a multinational. Section 2 looks over the research conducted by Jasjit Singh in his paper ‘Multinational Firms and International Knowledge Diffusion: Evidence using Patent Citation Data”. The analysis of this paper would give a greater understanding of the knowledge flow between the multinationals and the host countries. Section 3 of the paper deals with Multinationals and their impact in the emerging market and how globalization of innovation has enabled the developing countries to develop faster. Here we see that multinationals are no longer seen as raiders, rather seen in a positive light, as companies that bring in much needed technology and technical support that allows the host country’s’ citizen to able to improve their standard of living. Section 4 of the paper deals how technological innovations have also caused a dramatic rise in international trade especially in sectors which have close link to technology. In the conclusion we sum up the arguments of how multinationals have caused innovations, moreover, many of these innovations are not just technological but also supply chain process. Section 1 Innovations carried out by Multinationals fall under the second category of global generation of innovation. Since these companies operate on such large scales they usually have their own internal innovative network units based in different host countries as well as the home country. One of the many reasons for this is that, it allows the company not only to effectively and efficiently provide innovative ideas to the subsidiary unit but also it allows the main unit to understand the practical application process of these strategies on the local market of the host country and impart the reason for success or failure of a subsidiary to the other units. The three main strategies many multinationals use to organize their internal innovative system as stated by Archibugi and Iammarino. Centre-for-global This strategy is more commonly known in the business world as the “octopus view” of the multinational organization. As the word octopus suggest. The head of the octopus symbolizes the headquarters of the company where the entire R&D takes place. It is also the place where the top management is located thus the entire strategic planning and ideas takes place here too. It distributes its technical expertise and plans to the subsidiary symbolized as the tentacles. (Archibugi and Iammarino 2002) Local-for-local Each unit in the host country develops its own R&D center to cater to local needs. The interaction among them is weak as little information regarding technological innovations is shared from a subsidiary to another subsidiary. (Archibugi and Iammarino 2002) Local-for-global In this scenario multinationals distribute their R&D activities in numerous subsidiary countries rather than having their research activities concentrated in the home country. This enables them to take advantage of specialization done by different regions for instance software designing in Silicon Valley while manufacturing in China (Archibugi and Iammarino 2002). This strategy has been gaining popularity amongst multinationals as it allows them to specialize and reduce production cost and this can be proven facts in the following statement. the share of national R&D held by foreign firms in a sample of 30 (developed and developing) countries rose from 10.3% in 1993 to 15.9% in 2002, reaching values well above 50% in Ireland, Hungary and Singapore (Unctad, 2005). (Castellani and Zanfei) Section 2 After looking at the various structures a multinational can use to diffuse information for innovation it is now necessary to see whether there is any transfer of knowledge. Singh in his paper “Multinational Firms and International Knowledge Diffusion: Evidence using Patent Citation Data” conducts a study to measure the knowledge flow between the host and the Multinational. In his research to measure the knowledge exchange , Singh takes around 4400 multinationals and domestic organization in the six leading innovating countries - – US, Japan, Germany, France, UK and Canada. The knowledge flows are measured using citations for over half a million patents from the period 1986-1995, covering all manufacturing sectors. However the study is not applicable to developing countries due to lack of relevant data. Singh through his empirical data research shows a strong cross border knowledge flow within multinational as compared to different entities in the same country. The studies further shows that knowledge flow to and from the home base to the subsidiary are significant. The Study also gives evidence of intra national knowledge diffusion between domestic organization and the multinational though the strength of diffusion is weak from multinational to domestic organizations. Thus, multinational learn more from subsidiary unit country as compared to subsidiary unit country from the multinationals. However, it can be seen that multinational are great source of knowledge diffuser in Intra Company cross country border. (Singh 2003) Section 3 Multinationals play a pivotal role in the international transfer, creation and innovation of technology. Thus it acts as a bridge between different economies. It is because of this position that Multinationals hold, that it is argued that they can bring more harm than benefits as they can drive out domestic firms through lower prices which the Multinationals experience due to economies of scale. Thus many developing countries which had recently gained freedom from the colonial rule use to see multinational as: quasi colonial institution as they always took back profits to the home country. However it can be seen that through cost benefit analysis that the benefits of multinational foreign direct investment outweigh the cost. This change in stance is noticed by the fact that governments of the developing countries are now wooing multinationals to do FDI in their country moreover, data shows that 94% of the 2156 cases of countries changing their policies to make them more investor friendly. One of the many reasons why developing countries want FDIs is because multinational are hot beds for transfer of technology from the developed to the developing countries. (Castellani and Zanfei 2005). Moreover it is the globalization of innovation through the multinationals that the developing countries have been able to bring their economic indicators near the developing world. The ability to transfer expertise without going through the effort of inventing it, enables many developing countries to raise their standard of living and this can be seen across the broad in different fields whether it be medicine where multinationals like GlaxoSmithKline or Pfizer have allowed the people of the developing world to increase their average life span without investing billions of dollars in research and development or it could be the concept of mass production introduced by Henry Ford in his automobile plant which is now used by almost all the factories in the world. Thus by implementing technological advances made by the developed world it is possible for the under developed countries to catch up faster with the developed countries. A good example of this would Singapore which has changed within 50 years into a developed nation through this method of importing of technological innovation. Section 4 International trade flows also show the globalization of innovations. Since the post war era trade has been systematically and significantly growing and the one of the largest gain can be seen in the export ratio of goods and services to the GDP of the developed countries where in jumped from 9.45 in 1970 to 20.9% in 1995. Science based sector saw a dramatic rise which is due to the computer industry especially the software sector where companies like Microsoft and Google which have dominated the market. If closely looked in to, the rise in trade of goods have been of those goods which have close link to technology as indicated by Guerrieri and Milana in their study. A good example of this would be the aircraft industry which saw the emergence of Airbus along with few others as well as the electronic industry which is manufacturing but still based highly on technological innovations. With all this trade one has to notice quite a large percentage of it is being done by multinational organizations. Conclusion The world has seen a dramatic change in the last few decades and most of it has been due to technology. However the institution that has allowed the whole world to experience technology is multinational corporations. This diffusion of technology has also been in the interest of the multinationals as through innovations they have been able to experience lower cost resulting in increased profits. Multinationals have not just been making inroads in the technological innovation like LCD technology or making a new drug like Prozac which have great market demand, they have also made innovation in the way production process is conducted as in the case of the Toyota Corporation. Multinationals in their quest to reduce cost have also make innovation in supply chain such as DHL and IKEA which are known to shave costs due better packaging of the products for transport. Multinationals had been in the past considered not in the interest of the host countries however now this view has changed along with the way multinationals conduct business as now more and more firms are opting to have research units in host countries as it allows the firm to innovate their product according to local taste and culture. For instance Pizza Hut, Mc Donald’s along with other international fast food chain have adapted their menu in India as majority of the nation is Vegetarian. Thus, in the end I would like to conclude that without the existence of Multinational it would be impossible for the world to have technological innovation as it would not be feasible to conduct research. Moreover, any single country conducting it would not be willing to share it freely with others as they would have spent millions in research and would not gain any reward for it. Such is the great expense of research that organizations as monetarily strong as the multinationals are being forced to partner in research with other multinational in order to share research cost in order to make research more economically feasible a good example of this would be the collaboration of multinationals like Sony Corporation and Ericsson. Thus, the spread of technological innovation around the world has to be accredited to Multinational Corporation. Bibliography 1. Archibugi, Daniele, and Simona Iammarino. "The globalization of technological innovation: dentition and evidence." Review of International Political Economy (2002). Web. 25 Mar. 2011 . 2. Delmas-Marty, Mireille. "Globalization and multinational corporations." Accueil. GOOD PLANET: Environmental News and Related Issues. Web. 26 Mar. 2011 . 3. Dunning, John H., and Rajneesh Narula. "The R&D Activities Of Foreign Firms In The United States - Research and Read Books, Journals, Articles at Questia Online Library." International Studies of Management & Organization 25 (1995). Questia - The Online Library of Books and Journals. 1995. Web. 28 Mar. 2011 . 4. Edler, Jakob. "International research strategies of multinational corporations: A German perspective." ScienceDirect. 19 Mar. 2004. Fraunhofer Institute for Systems and Innovation Research. Web. 28 Mar. 2011 . 5. Narula, Rajneesh, and John Hagedoom. "Innovating through strategic alliances: moving towards international partnerships and contractual agreements." Scribd. 4 Nov. 1998. Web. 28 Mar. 2011 . 6. "PPI: The World Has Over 60,000 Multinational Companies." Progressive Policy Institute: Defining the Third Way. 27 Apr. 2005. Web. 25 Mar. 2011 . 7. Schmiele, Anja, and Axel Mangelsdorf. "Drivers of International R&D to Asian Economies - A Perspective from German Companies." 6-7 July 2009. 6th Asialics International Conference Linkages in Innovation Systems: Global and Local Perspectives. Web.26 Mar. 2011 . 8. Singh, Jasjit. "Multinational Firms and International Knowledge Diffusion: Evidence using Patent Citation Data." 9 Nov. 2003. Harvard Business School and Department of Economics. Web. 27 Mar. 2011 . 9. Sako, M. and Tierney, A., Sustainability of Business Service Outsourincg: the Case of Human Resource Outsourcing (HRO), 2005, Web. 27 Mar. 2011 10. Patel, P. and Vega, M. (1999) Patterns of internationalization and corporate technology: location versus home country advantages. Research Policy, Vol. 28, pp. 145-55. 11. Pearce, R.(1990) The Internationalization of Research and Development, London, Macmillan 12. Pisano, G. (1990) ‘The R&D Boundaries of the Firm: An Empirical Analysis’, Administrative Science Quarterly, 35, pp. 153-76. 13. Odagiri H. and Yasuda, H. (1996) “The determinants of overseas R&D by Japanese firms: an empirical study at the industry and company levels” Research Policy 25 (7), (pp 1059-1079) 14. Patel, P. (1996) Are large firms internationalising the generation of technology? Some new evidence. IEEE Transactions on Engineering Management, Vol. 43, pp 41-47. 15. Patel, P. and Pavitt, K. (2000) 'National Systems of Innovation Under Strain: The Internationalisation of Corporate R&D', in Barrell, R., Mason, G. and O'Mahoney, M.(eds.), Productivity, Innovation and Economic Performance, Cambridge: CambridgeUniversity Press. Read More
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