Paper to be presented at DRUID18Copenhagen Business School, Copenhagen, Denmark

June 11-13, 2018

Multinational companies’ knowledge strategies in R&D internationalization: Acomparison of emerging versus advanced economy multinationals

Philip J. SteinbergUniversity of Groningen

Innovation Management & Strategyp.j.steinberg@rug.nl

Vivien D. ProcherUniversity of Wuppertal

Jackstaedt Center of Entrepreneurship & Innovation Researchprocher@uni-wuppertal.de

Diemo UrbigUniversity of Wuppertal

Jackstaedt Center of Entrepreneurship & Innovation Researchurbig@uni-wuppertal.de

Christine VolkmannUniversity of Wuppertal

UNESCO-Chair of Entrepreneurship and Intercultural Managementvolkmann@wiwi.uni-wuppertal.de

AbstractEmerging economy multinational companies (EMNCs) are increasingly internationalizing their R&D tocatch-up with advanced economy multinational companies’ (AMNCs) technologies. We examine EMNCs’versus AMNCs’ R&D internationalization strategies, specifically their focus on knowledge exploitationand knowledge exploration. Our empirical findings based on a large multi-country dataset show thatEMNCs compared to AMNCs are more likely to follow a knowledge exploration and less likely to followa knowledge exploitation strategy. Moreover, we show that technological leadership constitutes a firm-level contingency to explain EMNC-AMNC differences in knowledge exploitation but not in knowledgeexploration. While there are substantial differences in strategies within the groups of EMNCsrespectively AMNCs, these differences are not moderated by technological leadership, and may, thus,be related to other mechanisms.

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Multinational companies’ knowledge strategies in R&D internationalization: A comparison

of emerging versus advanced economy multinationals

Abstract: Emerging economy multinational companies (EMNCs) are increasingly

internationalizing their R&D to catch-up with advanced economy multinational companies’

(AMNCs) technologies. We examine EMNCs’ versus AMNCs’ R&D internationalization

strategies, specifically their focus on knowledge exploitation and knowledge exploration. Our

empirical findings based on a large multi-country dataset show that EMNCs compared to

AMNCs are more likely to follow a knowledge exploration and less likely to follow a knowledge

exploitation strategy. Moreover, we show that technological leadership constitutes a firm-level

contingency to explain EMNC-AMNC differences in knowledge exploitation but not in

knowledge exploration. While there are substantial differences in strategies within the groups of

EMNCs respectively AMNCs, these differences are not moderated by technological leadership,

and may, thus, be related to other mechanisms.

Keywords: Emerging economy multinationals, innovation and R&D, internationalization,

knowledge exploration, knowledge exploitation, technological position

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1. Introduction

The global presence of emerging economy multinational companies (EMNCs) has

dramatically increased in the last two decades (UNCTAD, 2005, 2015), making them viable

competitors to advanced economy multinational companies (AMNCs). Nowadays, not only

AMNCs but also EMNCs place more attention on the internationalization of R&D-related

activities (EU, 2006, 2016). While AMNCs’ earlier internationalization was often driven by

exploiting existing firm-specific advantages (Rugman, 1981) and ownership advantages

(Dunning, 1988), it is argued that recent EMNC internationalization serves as a strategy to

overcome technolocial disadvantages by gaining access to distant knowledge (Awate, Larsen,

and Mudambi, 2015). Thus, through internationalization EMNCs may eventually catch up with

firms at the technological frontier (Awate, Larsen, and Mudambi, 2012; Bell and Pavitt, 1993;

Brandl and Mudambi, 2014; Mathews, 2002; Mathews, Hu, and Wu, 2011). Within their

internationalization efforts, we, thus, expect EMNCs compared to AMNCs to place greater

emphasis on knowledge exploration, which aims at sourcing advanced foreign knowledge for

global use, rather than knowledge exploitation, whereby MNCs leverage upon their existing

knowledge. While initial empirical evidence from qualitative indepth case studies supports the

notion that EMNCs and AMNCs differ in their internationalization strategies (Awate et al.,

2015), we lack larger quantitative evidence that these differences also hold on average for larger

numbers of firms and beyond specific pairs of advanced and an emerging economies (Cuervo-

Cazurra and Ramamurti, 2014; Ramamurti, 2012).

While mostly considered national flagships in their domestic market, EMNCs often lack

AMNCs’ technological capabilities.1 EMNC internationalization serves as a means of catching-

1 It is important to outline, that we are elaborating on the “average” EMNC, which should be somewhat more

infant than AMNCs, which are on average more mature.

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up with more innovative AMNCs (Awate et al., 2012; Bell and Pavitt, 1993; Brandl and

Mudambi, 2014; Mathews, 2002; Mathews et al., 2011) while AMNC internationalization is

rather driven by the opportunity to exploit firm-specific capabilities abroad (Rugman, 1981).

EMNCs aim at accessing strategic assets and advanced knowledge to overcome latecomer

disadvantages regarding production and innovation capabilities (Awate et al., 2012, 2015;

Guillén and Garcia-Canal, 2009; Luo and Tung, 2007). Subsequently, EMNCs can apply these

newly acquired strategic assets to increase their competitiveness at home, but also to compete in

global markets (Hennart, 2012). While the knowledge gap in production and output capabilities

can be closed rather quickly, the envisaged innovation catch-up is a big challenge for EMNCs

(Awate et al., 2012). This raises the question whether infant EMNCs’ strategic-asset-seeking

motives to invest abroad translate into different R&D internationalization strategies compared to

mature AMNCs.

Based on a comparative study of two MNCs from the wind turbine industry, Awate et al.

(2015) find that, the Indian EMNC has a stronger focus on competence accessing and creation

than on competence exploitation in their R&D internationalization compared to the Danish

AMNC. Consequently, EMNCs’ foreign subsidiaries are the major source of innovation and not

the EMNC headquarters (Awate et al., 2015; Giuliani et al., 2014). While Awate et al. (2012,

2015) provide first tentative evidence that the R&D internationalization process is fundamentally

different for EMNCs and AMNCs, we lack information on the generalizability of those findings

to other emerging and other advances economies (Rugman and Nguyen, 2014). We address this

gap by studying the R&D internationalization strategies of 374 EMNCs and AMNCs from

China, India, the US and Germany.

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Research on EMNCs often implicitly characterizes EMNCs as being infant and lagging

behind in terms of their output and innovation capabilities while AMNCs are mature with a

superior technological base. Hence, EMNCs’ motive of technological catch-up results from their

lack of technological knowledge and innovation (cf., Awate et al., 2015; Cuervo-Cazurra and

Ramamurti, 2014), which, however, is solely based on their emerging market origin. While this

might hold true for the average firm from emerging economies, we should take into account the

large variation in the technological leadership position of EMNCs. For example, Chinese firms

like Alibaba (e-commernce), Huawei (IT hardware) and Tencent (IT services) can be considered

to be technological leaders within their industry. Consequently, we analyze whether the R&D

internationalization strategy of EMNCs versus AMNCs is contingent on firm’s technological

position. We expect that EMNCs, which are technological leaders within their industry, will

focus less on knowledge exploration and more on knowledge exploitation, thereby mitigating

EMNC-AMNCs differences in their R&D internationalization strategies.

Our paper provides three important contributions to the literature on R&D internationalization

of multinational companies. First, we provide large-scale quantitative empirical analyses on the

R&D internationalization strategies of EMNCs in comparison with AMNCs, and thereby allow

for testing the generalization of previously conducted comparative case studies (Awate et al.,

2012, 2015). We support the view that EMNC internationalization is not a pure reiteration of

AMNC internationalization, that is, EMNCs’ R&D internationalization strategy is much less

driven by the eagerness to leverage on existing firm-specific advantages but rather to overcome

related deficiencies. Second, we take scholarly calls into account to consider the importance of

home country effects when analyzing EMNC internationalization (e.g., Cuervo-Cazurra and

Ramamurti, 2014; Ramamurti, 2012). Our dataset includes firms from two rather distinct

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emerging economies, namely India and China, and two also distinct advanced economies,

namely the US and Germany, enabling us to also examine the country heterogeneity in both

groups. We find significant differences not only across but also within the group of EMNCs and

AMNCs and demonstrate that the gap between EMNCs and AMNCs with respect to the

importance of knowledge exploration versus knowledge exploitation substantially depends on

the chosen pair of countries, being largest for China versus Germany and smallest for India

versus the United States. Third, following IB scholars stressing the need to incorporate boundary

conditions (Hernandez and Guillén, 2018; Luo and Wang, 2012), we identify a firm’s

technological position within its industry as a contingency factor when comparing EMNCs’ and

AMNCs’ focus on knowledge exploitation. We document that EMNCs on average focus less on

knowledge exploitation within their R&D internationalization than their AMNC counterparts,

but if EMNCs are technological leaders, they exploit their knowledge to the same extent as

technological leaders from advanced economies. Interestingly, we cannot identify a similar

condition for an MNC’s focus on knowledge exploration. We discuss potential explanations.

2. R&D internationalization of EMNCs

2.1. Growing importance of EMNCs

In the 21st century, the number of EMNCs has dramatically increased, partly sparked by pro-

market reforms in the emerging markets in the 1980s and 1990s (Cuervo-Cazurra and

Ramamurti, 2014). As an illustration, the 2017 Fortune Global 500 listing2, representing the top

500 companies worldwide regarding revenue, included as much as 109 Chinese and 7 Indian

companies, compared to 132 companies from the United States.3 Just a decade ago, in 2007, this

2 See http://fortune.com/fortune500/ (accessed 04.08.2017).

3 Note however, Rugman and Nguyen (2014) discuss that in the year 2012 only five of these Chinese companies

were actually true MNCs, following Rugman’s (1981) definition of a MNC. They challenge the view that EMNCs

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list contained only 25 Chinese and 6 Indian companies. These data point towards a shift in

economic activity towards emerging economies. Especially the quadruple-increase of Chinese

firms within a decade is an impressive catch-up. A similar picture emerges when looking at the

2016 EU Industrial R&D Investment Scoreboard, which monitors the worldwide trends in

corporate R&D. Among the 50 global R&D investors (by R&D intensity) there are three

companies from China (30. Baidu, 33. Huawei and 37. ZTE) (EU, 2016)4, compared to three

companies from Germany and 15 companies from the US. Thus, these EMNCs have become

serious competitors for AMNCs (Guillén and García-Canal, 2013; Ramamurti and Singh, 2009;

Williamson and Zeng, 2009; Williamson et al., 2013). The striking growth of EMNCs sparked

interest among scholars because theoretical predictions for MNC internationalization being

triggered by exploitative motives seemed not fully suitable to explain the foreign investment

behavior and internationalization of EMNCs.

Despite their aggressive internationalization (Ramamurti, 2012) and the cannibalization of

global market shares from AMNCs (Awate et al., 2012; Azevedo et al., 2016; Brandl and

Mudambi, 2014), most EMNCs can still be classified as “infant” MNCs or late-movers with

weaker technologies (Awate et al., 2012; Cuervo-Cazurra and Genc, 2008; Ramamurti, 2016),

when compared to incument AMNCs, which exploit their technology superiority built at home

and through internationalization (Luo and Tung, 2007; Ramamurti, 2016). Considering their

technological inferiority, it is unclear how EMNCs can catch-up with the technologies,

innovations, and expertise of Western firms (Chari, 2015; Williamson, 2014). If these firms want

are already largely present on the world market, stating also that most firms from India in the Fortune Global 500 are

not MNCs. Many Chinese MNCs listed in the Fortune Global 500 are still state-owned enterprises (SOEs). 4 „The "EU Industrial R&D Investment Scoreboard" (the Scoreboard), published annually since 2004, monitors

top EU based R&D investing companies benchmarking them with top R&D investors located in other parts of the

world.“ (EU, 2016, p. 7). The Top 50 R&D companies include firms from the US (23), the EU (15 – incl. Germany

3), Japan (4), Switzerland (3), China (3), South Korea (1) and Taiwan (1) (see p.46-51).

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to compete on equal terms on global markets with developed country firms, they have to improve

their resources and capabilities (Gaur and Kumar, 2009), especially related to technology and

innovation (Awate et al., 2012, 2015). Previous research shows that one of the main drivers for

EMNC internationalization is the access to knowledge and resources they do not have in their

domestic markets (Mathews, 2006). Therefore, the aggressive EMNC internationalization is

often evaluated as an attempt to overcome economic and institutional deficiencies of their home

countries (Aulakh, 2007; Cuervo-Cazurra and Ramamurti, 2014; Mathews, 2002) and as a

strategy to catch-up with mature AMNC competitors (Awate et al., 2012, 2015; Brandl and

Mudambi, 2014; Williamson, 2014). Consequently, EMNCs are most likely to have different

internationalization strategies, especially regarding their R&D internationalization, than their

counterparts from advanced economies (Luo and Tung, 2007).

2.1. Role of knowledge exploration and knowledge exploitation in EMNC catch-up

As R&D is a key source of knowledge and technology, we focus on the two most prominent

strategies related to knowledge when firms internationalize their R&D activities through

subsidiaries or external partners.5 First, firms can leverage on their existing knowledge via

knowledge exploitation (von Zedtwitz and Gassmann, 2002; Kuemmerle, 1999).6 In this case,

firms exploit the knowledge that is allocated and orchestrated around the headquarters to build

their firm-specific advantage (cf., Rugman, 1981). MNCs can typically scale on their knowledge

generated at home by adapting it to the local peculiarities of foreign markets (Kuemmerle, 1999;

von Zedtwitz and Gassmann, 2002). Second, in the last decades, firms have increasingly

5 While some studies like Cantwell and Mudambi (2005) focus on mandates of subsidiaries, we widen the

definition to include also external foreign R&D activities (cf., e.g., Lewin et al., 2009) since these activities can also

be motivated by the exploitation or exploration of knowledge. 6 Please note that strategies or motives for R&D internationalization have been labeled differently in the

literature. The knowledge exploitation strategy, characterized by predominant knowledge flows from the

headquarters to foreign subsidiaries and foreign partners, has also been labeled home-base exploitation (Kuemmerle

(1999), competence-exploiting (Cantwell and Mudambi, 2005) or market-driven R&D internationalization (von

Zedtwitz and Gassmann, 2002).

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recognized the potential to source knowledge from foreign destinations (Cantwell, 1989, 1995;

Cantwell and Mudambi, 2005; Kogut and Chang, 1991; Pearce, 1999), a strategy labeled

knowledge exploration7: Firms explore and source knowledge from foreign markets that

eventually enriches their knowledge base and thus contributes to their firm-specific advantages

and competitiveness (Cantwell and Mudambi, 2005; Kuemmerle, 1999; von Zedtwitz and

Gassmann, 2002).

EMNCs may close the technology gap to their AMNC competitors by sourcing knowledge

and technology from foreign locations that provide market-specific advantages, which are not

available in their home country. As Awate et al. (2015) outline, EMNC headquarters often have

lower knowledge competencies than their foreign subsidiaries, while in case of AMNC they

observe the opposite. This means that EMNCs headquarters catch up with the knowledge and

technology of their foreign R&D subsidiaries or R&D partners, making them net users of

knowledge, while foreign subsidiaries are knowledge providers (Awate et al., 2015). With

respect to R&D internationalization strategies, EMNCs can be expected to strive for knowledge

exploration with its possibilities to source and transfer knowledge from foreign locations and, to

be able to catch up with AMNC, they need to do so even more than AMNCs, which leads to our

Hypothesis 1a:

Hypothesis 1a. For their international R&D activities, EMNCs (vs. AMNCs) focus more on a

knowledge exploration strategy.

Due to their more advanced technological basis, AMNCs are likely to have more

opportunities and, consequently, may also be more engaged in knowledge exploitation through

7 Alternative labels have been used to describe this strategy, which is characterized by predominant knowledge

flows from the foreign destinations to the headquarters or overall MNE knowledge base, e.g., competence-creating

(Cantwell and Mudambi, 2005), home-base augmenting (Kuemmerle, 1999) or technology-driven R&D

internationalization (von Zedtwitz and Gassmann, 2002).

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the transfer of existing knowledge from domestic headquarters to foreign subsidiaries (Awate et

al., 2015). EMNCs, in contrast, are less likely to develop superior technologies at their home

base (Cuervo-Cazurra and Genc, 2008) and, hence, will simultaneously be less likely to follow a

knowledge exploitation strategy when internationalizing their R&D, which forms our Hypothesis

1b:

Hypothesis 1b. For their international R&D activities, EMNCs (vs. AMNCs) focus less on a

knowledge exploitation strategy.

The above theorizing for Hypotheses 1a and 1b relates to absolute levels of the importance

that firms assign to both the knowledge exploration and the knowledge exploitation strategy.

Since knowledge exploration and knowledge exploitation are not necessarily mutually exclusive

strategies (cf., Kedia, Gaffney, and Clampit, 2012), it is also important to consider how firms

balance both strategies. Firms can choose a unique strategic orientation regarding their

knowledge-related R&D internationalization strategies in which they opt for a certain relative

balance between knowledge exploration and knowlegde exploitation. For example, MNCs could

have a strong focus on both, the exploitation of exisiting knowledge and the exploration of new

knowledge and technologies (cf., von Zedtwitz and Gassmann, 2002), resulting in a strategy of

equally balancing competence-exploitation (e.g., exploiting knowledge) and competence-

creation (e.g., exploring knowledge) (cf., Cantwell and Mudambi, 2005). Since, EMNC are

constraint in their use of a knowledge exploitation strategy (Cuervo-Cazurra and Genc, 2008),

such a balance of exploiting and exploring knowledge at high absolute levels is more likely to be

available for AMNCs. While a balancing strategy does not imply that AMNCs engage less than

EMNCs in knowledge exploration, overall the relative importance of knowledge exploration vis-

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à-vis knowledge exploitation can be expected to be more pronounced for EMNCs in comparison

with AMNCs (see Hypothesis 1c).

Hypothesis 1c. For their international R&D activities, EMNCs (vs. AMNCs) assign a higher

relative importance of a knowledge exploration strategy over a knowledge exploitation strategy.

2.3. The relative technological position as moderator of EMNC-AMNCS differences

Previous qualitative research suggests that the difference between EMNCs and AMNCs is

partly driven by the firm-specificity of technological inferiority (Awate et al., 2015) or in other

words, the company’s technological capability. A firm’s technological advancement usually

determines its technological position within an industry (Grimpe and Sofka, 2016; Salomon and

Jin, 2010; Steinberg, Procher, and Urbig, 2017),8 within a country (Mahmood and Rufin, 2005),

or worldwide (Kumar and Russell, 2002). The technological frontier represents the maximal

available technological opportunity at a given time (Grimpe and Sofka, 2016; McCain, 1977).

Chung and Alcácer (2002) suggest that technologically lagging firms can use their international

investments to catch up with leading firms and thereby reduce the technology gap. In line with

this argumentation, Blalock and Gertler (2009) claim that, as a consequence, laggards have more

opportunities to improve their technological position and, therefore, gain more from exposure to

new technologies and knowledge. Thus, laggards experience stronger incentives and are,

therefore, more likely to be actively seeking for and exploring technology through international

investments (Chung and Alcácer, 2002). Leaders, in contrast, will have more opportunities to

exploit their technologically advanced knowledge in foreign places.

Applied to the context of the comparison between EMNCs and AMNCs, this implies that an

MNC’s relative technological position influences its strategic focus on knowledge exploration,

8 A firm’s relative technological position within an industry is strongly overlapping with a firm’s technological

position relative to competitors in its main sales-market since the main sales-market usually determines the firm’s

primary industry within industry classification, such as ISIC, or NACE.

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respectively, knowledge exploitation. Consequently, Ramamurti (2012) and Ramamurti and

Hillemann (2018) emphasize the relevance of considering the development stage of an MNC.

While EMNCs have usually been classified as “infant MNCs” and incumbent AMNCs as

“mature MNCs”, we expect that the difference between EMNCs and AMNCs in knowledge

exploration and knowledge exploitation will be less pronounced if a firm is a technological

leader relative to its competitors in its respective main sales market, and more pronounced if it is

a laggard. In other words, technological leaders from emerging markets can opt for similar

strategies as incumbent AMNCs. As an example, Huawei, being a relative technological leader

in telecommunications is probably no longer dependent on an innovation catch-up strategy and

can even exploit its technological expertise through internationalization. We, therefore,

hypothesize that a firm’s relative technological leadership (i.e., being close to the technological

frontier) will have a negative moderating effect on the relation between EMNCs (versus

AMNCs) and knowledge exploration (both absolute and relative to knowledge exploitation) and

a positive moderation effect on the relation between EMNCs (versus AMNCs) and knowledge

exploitation:

Hypothesis 2a. The positive relationship between EMNCs (vs. AMNCs) and a knowledge

exploration strategy is less positive for EMNCs closer to the technological frontier.

Hypothesis 2b. The negative relationship between EMNCs (vs. AMNCs) and a knowledge

exploitation strategy is less negative for EMNCs closer to the technological frontier.

Hypothesis 2c. The positive relationship between EMNCs (vs. AMNCs) and the relative

importance of a knowledge exploration strategy over a knowledge exploitation strategy is less

positive for EMNCs closer to the technological frontier.

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3. Method

3.1. Research design

We base our analyses on primary data collected through a large quantitative survey on

international R&D activities of 500 firms from China, India, the United States and Germany,

which we conducted in conjunction with EY (Ernst & Young) in 2016. These primary data were

merged with and carefully validated based on secondary data derived from Bureau van Dijk’s

Orbis database. The survey, which we refer to as EY Global Innovation Survey (EYGIS),

focuses on MNCs’ R&D activities and related management practices and was simultaneously

carried out in four countries. Besides information on the national and international set-up of

R&D activities, participants were asked about several national and global characteristics of their

company, allowing us to use a range of relevant control variables. Furthermore, our key variables

related to knowledge exploration and exploitation cannot be derived from official balance sheet

data or nation-wide innovation surveys like the Community Innovation Survey (CIS). The survey

questions are aligned to well-known surveys, following standards such as the Frascati and Oslo

Manual (OECD, 2002, 2005) where applicable. Before data collection, the survey was discussed

in an iterative process with industry experts holding similar positions as the later respondents to

ensure that each question is comprehensive. The original questionnaire was constructed in

German and was then translated into English and Chinese by professional service providers. Due

to the many different languages and dialects in India, the main part of the interview in India was

held in English while the welcome address and farewell were held in local languages.

The survey addressed MNCs that carried out internal or external R&D abroad, and are active

within the information and communication technologies (ICT) or manufacturing industries,

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excluding pharmaceuticals9, with a focus on firms with at least 50 million USD sales worldwide.

The data were collected at the parent company level. Based on a corresponding selection of firms

form Bureau van Dijk’s Orbis database, firms were approached until the envisioned sample size

of 125 responses (irrespective of whether or not all questions were answered) for each country

was achieved.

The survey was conducted via structured computer-aided telephone interviews by specialized

service providers with fluent language speakers in April and May 2016. Survey respondents were

senior executives responsible for the enterprise’s R&D. The short time span in which the survey

was conducted offers an advantage over surveys with longer time ranges because potential

influences of changes in economic conditions over time are minimized. The survey was

implemented together with EY as a professional partner, which provided us easier access to

potential interview partners. The overall response rate for the survey was 48% and the average

number of calls until success was 4.05.

Before conducting the interviews, information on the MNCs’ industry classifications based on

Bureau van Dijk’s Orbis database were merged. To increase the reliability of the data,

information from the survey on MNC sales and numbers of employees were carefully cross-

checked with the associated information from Orbis. When larger differences occurred, a second

telephone interview was conducted to validate key information. Considering the steps taken to

increase validity, we expect the data to have comparable reliability as nation-wide innovation

surveys, such as the CIS surveys.

For a sample of 374 firms, we have information on all our variables of interest (113 from

China, 63 from India, 93 from the US and 105 from Germany). The average domestic

9 The pharmaceutical industry was excluded due to the special role of clinical drug trials (which are partly

declared as R&D expenditures) and related regulatory issues.

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employment is 2,472 employees, and the average global revenue is 895 million USD. The

manufacture of machinery and equipment (15.0%) and the manufacture of computer, electronic

and optical products (11.8%) represent the largest industries in our sample.

3.2. Country setting

With this study we aim at larger quantitative evidence to complement previous qualitative

studies and acknowledge that country differences may confound the identified EMNC effect if

we focused on only one emerging and one advanced economy (Hoskisson et al., 2000). We

selected China and India as two economically very relevant though very different emerging

economics, e.g., with respect to the business culture and specific industry policies, and the US

and Germany as two economically very relevant but again culturally rather different advanced

economies. Even though there are no strict criteria on how to define emerging market and

developing economies (International Monetary Fund, 2016), an emerging market economy is

usually characterized by low to middle income per capita, rapid economic development, and

being in the process of moving from a closed economy to a free-market system (Arnold and

Quelch, 1998; Cuervo-Cazurra and Ramamurti, 2014). In line with this characterization and

consistent with previous research (Arnold and Quelch, 1998; Brandl and Mudambi, 2014; Luo

and Zhang, 2016), we consider China and India as emerging economies, and the US and

Germany as advanced economies. With these four countries, we can collect a sufficient number

of firms within each economy, but also have substantial diversity within the group of MNCs

from emerging and from advanced economies.

Figure 1 illustrates some prominent economic indicators for our selected four countries. China

is ranked second among the four countries regarding total GDP (Panel 1A), experiencing a

massive economic growth over the last 15 years. When normalizing the GDP by capita (Panel

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1B) a different picture emerges, which reveals that China and India are still economic laggards

compared to advanced economies like the US and Germany.

------------------------------------------

Figure 1 goes about here

------------------------------------------

Following trade liberalization in China and India exports and imports have been steadily

increasing since the late 20th

century (Panels 1C and 1D). India has first implemented radical

economic reforms in 1991, followed by further reforms to loosen trade barriers, such as cuts of

tariffs in 2004 and 2008. China has also undergone serious economic reforms, starting as early as

1978 with opening markets for FDI, followed by further reforms in the late 1980s until the early

2000s with a focus on privatization, lifting of price controls and decreasing protectionism. As a

result, both economies have benefitted from market liberalization with increasing trade shares

and GDPs. Regarding the total amount of exports, China has even taken the lead among the four

countries in the last years.

Regarding GDP and trade, at least China is catching up with Germany and the US, but the

difference between the two advanced economies and the emerging economies remains striking

when looking at key innovation indicators, such as the patent applications at the European Patent

Office (EPO) for the four countries (Panel 1E). The US had, by far, the most applications and

also has experienced a strong increase in recent years (42,597 applications in 2015). Germany

follows at a steady rate of about 25,000 applications per annum. China (5,728 applications in

2015) and India (577 applications in 2015) are both fundamentally lagging behind, but

experience a strong increase (which especially holds for China). This increase may be partly

explained by China’s strong increase in public and private R&D expenditures relative to its GDP

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in the last years (see Panel 1F). In terms of relative input for innovation, China is slowly but

steadily catching up with Germany and the US and might well reach their relative spending in

the next years. Remarkably, India’s relative R&D expenditures are stagnating below 1% of its

GDP. One reason might be that India has no state policy that pushes towards innovation as

immensely as in China.

3.3. Variables

3.3.1. Dependent variables

To capture the extent to which firms follow a knowledge exploration strategy in their R&D

internationalization, firms indicated whether “access to specialist knowledge or technologies”

and “access to qualified personnel” was “not important” (1), “important” (2) or “very important”

(3) to them.10 The items to indicate an exploration strategy are coherent with items from surveys

such as the Eurostat survey on international organization and sourcing of business activities in

2012 and the Swiss Innovation Survey 2011 conducted by ETH Zuerich, and the items relate to

the key characteristics of exploration strategies as indicated by von Zedtwitz and Gassmann

(2002). We use the average of responses to these items to construct our variable indicating a

firm’s knowledge exploration strategy. The scale’s internal reliability is sufficiently high as

indicated by coefficient alpha of 0.77.

To capture the extent to which firms engage in a knowledge exploitation strategy in their

R&D internationalization, we proceed identically to the operationalization for knowledge

exploration. Evaluations of the motives “access to new markets” and “adaptation of products to

the foreign sales market” were used to operationalize the knowledge exploitation strategy. As

before, these items are consistent with the surveys mentioned above. We use the average of

10

Please note, that the scale follows the Eurostat survey. Additionally, our survey was conducted via computer-

aided telephone interviews and in such cases scales with too many alternative responses can be confusing and

incomprehensible to participants.

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responses to these items to construct our variable. The scale’s internal reliability is sufficiently

high as indicated by a coefficient alpha of 0.71.

Relative knowledge exploration reflecting the relative importance of knowledge exploration

over knowledge exploitation strategies was constructed as the importance of the knowledge

exploration strategy normalized by the sum of the importance of both, knowledge exploration

and exploitation strategies.

3.3.2. Key explanatory variables

EMNC is a dummy variable taking the value of 1 if the firm is a multinational company from

an emerging economy (China or India) and 0 if the firm is a multinational enterprise from an

advanced economy (the United States or Germany).

Technological leadership is a variable measuring the innovativeness of a firm compared to its

competitors in its primary sales market (cf., Makino, Lau, and Yeh, 2002). On a five-point scale

from 1 (very rarely first) to 5 (very often the first) participants evaluated whether their firm

compared to its competitors in their primary sales market in the period 2013 until 2015 were

innovative first-movers when launching new products, services, business processes,

technologies, etc. (Covin, Slevin, and Schultz, 1994; Hansen, Shrader, and Monllor, 2011). R&D

intensity relative to a firm’s industry is often used as a proxy for technological leadership

(Grimpe and Sofka, 2016; Salomon and Jin, 2010; Steinberg et al., 2017). In our specific case,

where we compare EMNCs and AMNCs, this variable would not be a suitable proxy. EMNCs, in

an effort to catch up, may dramatically increase their R&D intensity, as input into the innovation

process, but might not have yet achieved sufficient innovation output and a sufficient knowledge

base to actually be considered as technology leaders (see also comparison of Figure 1E and 1F).

18

In this very reasonable case, the R&D intensity as a proxy for technological leadership would

wrongly suggest that these firms are already technological leaders.

3.3.3. Control variables

While our hypotheses only relate to differences between MNC from emerging versus MNCs

from advanced economies, we also explore country-related heterogeneity within each of the two

groups. We construct two contrast codes for INDIA (vs. China) and USA (vs. Germany), the

contrast codes are +1 and -1 for the two contrasted countries (e.g., India = +1 and China = -1)

and 0 for the two remaining countries. While the EMNC dummy together with two dummies

controlling for the differences within each group (e.g., dummies for India and Germany) would

be econometrically equivalent, the contrast coding allows us to directly interpret the coefficient

estimated for the EMNC dummy as the average effect of emerging versus advanced country

MNCs, averaged at the country level (Cohen et al., 2013). For illustrations, we calculate country-

specific coefficients based on appropriate linear combinations of the EMNC average effect and

the estimated within-group contrast (e.g., the effect associated with China would be the

coefficient of EMNC minus the coefficient of the contrast code).

To further reduce the risk of spurious results caused by, e.g., differences in MNCs’ general

input into R&D, we include R&D capacity. We follow Berchicci (2013) and measure R&D

capacity as the number of domestic R&D employees divided by the number of total domestic

employees (see also Cassiman and Veugelers, 2002).

We additionally control for firm performance. Respondents in the survey were asked how

satisfied the company’s top management was with the general performance of the company in

2015. The variable ranges from 1 (very dissatisfied) to 5 (very satisfied).

19

To control for spurious results due to correlated strategies for R&D internationalization, we

control for a third major strategy, which is cost- and not knowledge-related (cf., Cantwell and

Mudambi, 2005). Cost strategy is a multi-item measure including survey items on the

importance of “Cost savings due to lower personnel expenses“, “Cost savings due to lower tax

burden or tax incentives abroad“, “Greater funding opportunities for R&D abroad” and “Other

savings”, which were rated on the same scale as exploitation and exploration strategies. We use

the average of responses to these items to construct the variable. The internal reliability is

sufficiently high as indicated by coefficient alpha of 0.88.

To control for potential learning effects from internationalization experience, we include

international R&D experience and export share. As Ramamurti (2012) states, international R&D

experience is an important variable, since effects that may seem to be related to the country

destination (as the EMNC effect) are in fact attributable to international experience of MNCs.

Based on the available data we included a categorical variable with “1-5 years”, “6-10 years”,

“11-15 years” and “> 15 years” of international R&D experience. We do not have a category “no

experience”, because some international R&D activity was a pre-requisite for participating in the

survey. We include a firm’s export share to control for the general importance of foreign markets

to a firm. Export share is a categorical variable indicating the proportion of a firm’s total

domestic revenue that is attributable to exports, classifying firms into “no export”, “1-25%”, “26-

50%”, “51-75%” and “>75%”.

We include further firm-specific control variables that may be related to firms’ international

R&D activities. Firm age is a variable capturing the firm’s age as the natural logarithm of the

mid-point of five-year intervals. Firm size is measured by the natural logarithm of the number of

employees. Since some unique features of EMNCs may not necessarily be associated with their

20

home country but rather with their industry of operation (Brandl and Mudambi, 2014;

Ramamurti, 2012), we also control for any remaining industry effects by including industry fixed

effects. Following OECD categorization for the manufacturing industry (OECD, 2011) we

include dummy variables for high-tech, medium-high-tech, medium-low-tech and low-tech

manufacturing industries, as well as one for firms from ICT industries.

4. Results

Table 1 reports descriptive statistics for our sample and correlations between the dependent

variables and all other variables (see Appendix A for the complete correlation matrix). Small to

moderate correlations and variance inflation factors below 5.0 in all models indicate no problems

with multicollinearity (Belsley, Kuh, and Welsch, 2005). Table 1 reveals that the association of

EMNC with knowledge exploration is positive, while the association with exploitation is the

opposite (negative). A similar picture emerges for firm age, with younger firms being rather

associated with exploration and older firms with exploitation. Interestingly, firm size is related to

knowledge exploration but not to exploitation. The cost strategy is positively related to both

knowledge strategies but much stronger for exploitation, such that firms following a cost strategy

place also more importance on exploitation rather than exploration strategies. This is in line with

the reasoning that often a focus on cost is associated with a development towards exploitation

(cf., Cantwell and Mudambi, 2005).

------------------------------------------

Insert Table 1 about here

------------------------------------------

Turning to our hypothesis tests, Table 2 reports results of hierarchical ordinary least squares

regression (with clustered standard errors correcting individual-level correlations over time) that

21

test Hypotheses 1a, 1b and 1c. Analyses were run for an MNC’s focus on a knowledge

exploration strategy (Models 1-3), knowledge exploitation strategy (Models 4-6), and relative

knowledge exploration (Model 7-9). Each initial model focuses on the control variables

including a firm’s relative technological position (i.e., technological leadership). In Model 1 firm

size, R&D capacity, performance satisfaction, and technological leadership are positively and

statistically significantly correlated with knowledge exploration. The findings for technological

position and performance seem to contradict the idea that especially laggards are focusing on

exploration to catch-up (Chung and Alcácer, 2002), and may support the perspective that many

firms simultaneously engage in competence exploration and exploitation (Cantwell and

Mudambi, 2005). This perspective is further supported by the finding that the relationship

between the two knowledge-related strategies of knowledge exploration and exploitation is

positive and statistically significant in Models 1 and 4, respectively. In Model 4, firm age is

positively and statistically significantly correlated with knowledge exploitation, reflecting the

fact that mature MNC may exploit their technological superiority by internationalization

(Ramamurti, 2016). Moreover, cost strategy is positively and statistically significantly correlated

with knowledge exploitation, reflecting a potential association between the two strategies (cf.,

Cantwell and Mudambi, 2005). The findings for Model 7 corroborate the findings from Model 1

and 4, with statistically significant relations of relative knowledge exploration with firm size

(positive), firm age and cost strategy (negative).

------------------------------------------

Insert Table 2 about here

------------------------------------------

22

Model 2, 5 and 8 introduce the EMNC dummy to test our Hypotheses 1a, 1b, and 1c. Being

an EMNC is significantly related to exploration (positive) and to exploitation (negative), as well

as to relative knowledge exploration (positive). Hence, we support our hypotheses stating that

EMNCs, in comparison with AMNCs, have a stronger focus on a knowledge exploration strategy

and a weaker focus on a knowledge exploitation strategy when internationalizing their R&D

activities. Being an EMNC, on average, increases the importance of the knowledge exploration

strategy by 26% of one standard deviation (Model 2) and decreases the importance of the

knowledge exploitation strategy by 21% of one standard deviation (Model 5) in our regression

analyses.11

Our analyses so far have pooled firms from the two emerging countries and those from the

two advanced economies. Differences between emerging and advanced firms may not apply to

all pairs of emerging and advances economies but may result from particularities of selected

pairs. To explore the heterogeneity within the groups of emerging respectively advanced

economies, we include the contrast codes of INDIA (vs. China) and USA (vs. Germany) (Models

3, 6, 9). While the estimated coefficients do not seem to be large enough to actually dominate the

effect of EMNC versus AMNC, we observe substantial and statistically significant differences

particularly for knowledge exploration in both groups and for relative knowledge exploration

between EMNCs. Based on the EMNC dummy and the contrast codes, Figure 2 graphically

illustrates the estimated levels (and related confidence intervals) for the three dependent

variables for all four countries. We observe that Chinese MNCs have the strongest focus on

exploration and weakest focus on exploitation in our sample, both in absolute and in relative

terms. India, however, does not differ that much from the AMNCs and, in particular, with respect

11

Due to standardizing our dependent variables, these percentages can be directly derived from the coefficients

reported in Tables 2 and 3.

23

to absolute and relative knowledge exploration, it does not differ from the US. While one might

be tempted to argue that India does not explore enough to be able to catch up, the relatively high

relative importance of knowledge exploration for the US versus Germany, might also indicate

that US-based firms are more likely to balance knowledge exploration and exploitation at

comparable levels (cf., Cantwell and Mudambi, 2005) and, thus, to keep high levels of

exploration despite their technological advancement. In sum, while the gap between EMNCs and

AMNCs does not seem to be substantially reversed, nevertheless, its magnitude is highly

sensitive to the selected pairs of emerging and advanced economies and might, in some

circumstance, even virtually disappear. While this might be counted as evidence against a

systematic difference between EMNCs and AMNCs, it is important to note that this might only

imply that besides an EMNC effect there is additional country-specific variation that overlaps

with the EMNC effect. Through our following analyses based on moderation effects, we will

demonstrate that the latter, i.e. the overlapping of different effects, might indeed be relevant.

------------------------------------------

Insert Figure 2 about here

------------------------------------------

In Table 3 (Models 10, 13, and 16) we report estimations that additionally include the

interaction of EMNC with technological leadership, which allow testing our Hypotheses 2a, 2b,

and 2c. To simplify interpretation, Figure 3 graphically illustrates the moderating effects; it plots

the estimated difference between EMNC and AMNC and the related confidence interval

conditioned on the level of technological leadership. For all strategy variables, we observe that

the magnitude of the effect is smaller when comparing technological leaders; however, this

moderating effect is small and statistically not significant for the absolute levels of knowledge

24

exploration. Hence, we cannot support Hypothesis 2a. However, we find unambiguous support

for Hypothesis 2b, stating that the difference between EMNCs and AMNCs regarding

knowledge exploitation within their R&D internationalization is negative but decreases in

magnitude the more technologically advanced an MNC is. Similarly, we observe that the relative

focus on exploration is more positive for EMNCs compared to AMNCs, but decreases for

technologically more advanced firms, which supports our Hypothesis 2c. In fact, these latter two

moderation effects are as strong as to virtually make the EMNC-AMNC gap disappear for

technologically very advanced firms.

Our earlier analyses revealed that a substantial part of strategic differences is explained by

heterogeneity within the groups of EMNCs and AMNCs (see Models 3, 6, and 9). We have also

seen that the difference between EMNCs and AMNCs with respect to knowledge exploitation

(and the relative importance of knowledge exploration) can indeed be explained by firms’

differences in technological leadership, which supports catch-up-based explanations. With

Models 12, 15 and 18, which are reported in Table 3, we now explore to what extent the

previously mentioned within-group effects are moderated by technological leadership. Our

regression analyses do not reveal any indication that within-group effects are moderated by the

technological position. Hence, in contrast to the between-group effect and, in particular, for

exploitation and the relative importance of exploration over exploitation, these within-group

effects are not likely to be driven by mechanisms related to catching up, but possibly by other

country peculiarities, e.g., the institutional context. Hence, we isolate effects that are specific to

the difference between EMNCs and AMNCs rather than to differences between countries in

general.

25

------------------------------------------

Insert Table 3 and Figure 3 about here

------------------------------------------

5. Discussion

In this article, we theorize on differences between EMNCs’ and AMNCs’ R&D

internationalizing strategies. We base our reasoning for a stronger focus on knowledge

exploration of EMNCs’ R&D internationalization, in comparison to AMNCs, on the premise that

EMNCs strive to catch up with the technologies and expertise of more mature AMNC

competitors. Given that EMNCs, on average, lack firm-specific technology advantages due to

their weak knowledge base at home (Awate et al., 2012; Cuervo-Cazurra and Genc, 2008;

Ramamurti, 2016), we theorize that EMNCs will be less focused on knowledge exploitation,

because they cannot – yet – leverage on strong existing innovation capabilities when they

internationalize their R&D. We further theorize that technological leadership, as an important

firm-level contingency (Makino et al., 2002), diminishes the differences between EMNCs and

AMNCs regarding knowledge exploration and knowledge exploitation.

We base our analyses on a relatively large sample of 374 MNCs from four different countries

(China, India, the United States, and Germany) that allow us to test our theorizing of EMNC-

AMNC differences and also explore firm-level heterogeneity and country-level heterogeneity

within the group of EMNCs and AMNCs, respectively. We find that EMNCs (versus AMNCs)

are more likely to focus on a knowledge exploration strategy and less likely to focus on a

knowledge exploitation strategy when internationalizing their R&D. Furthermore, we find that in

case of knowledge exploitation the difference between EMNCs and AMNCs is less pronounced

and even almost absent for technological leaders compared to technological laggards. Though

26

observing an effect in the predicted direction for knowledge exploration, the effect is very small

and statistically not significant; hence, we cannot support a moderating effect of a firm’s

technological position on the EMNC effect related to knowledge exploration, but only for

knowledge exploitation as well as for the relative importance of knowledge exploration over

exploitation.

Our analyses of country-specific effects within the groups of EMNCs and AMNCs (Luo and

Wang, 2012; Luo and Zhang, 2016) reveal substantial heterogeneity within groups and we

document that the difference between EMNCs and AMNCs is highly sensitive to what country

pair is selected, ranging from observing a large to observing almost no difference in strategies of

respective firms; a significant reversal of the order of EMNCs and AMNCs, however, is not

observed. Furthermore, none of the within-group heterogeneity is moderated by technological

leadership, which suggests that differences in technological advancement, which is key to the

catch-up explanation for the differences between EMNCs and AMNCS, is not a substantial

element for explaining these within-group variations.

5.1. Implications

Our findings have several implications for future research. First, Rugman and Nguyen (2014,

p. 65f.) criticize that “the literature on EMNCs has reached implausible conclusions by studying

a small number of firms from emerging economies”. They identify a better alignment of theory

and empirics as a main challenge for researchers comparing EMNCs and AMNCs. We take a

step towards addressing this challenge by theorizing on differences between EMNCs and

AMNCs and testing our theoretical predictions on a relatively large sample that allows for

comparison between EMNCs and AMNCs and also for heterogeneity within those groups, with

respect to both the specific advanced or emerging economy and the technological advancement

27

of individual firms. Our empirical findings support previous research stating that EMNCs’ R&D

internationalization is more strongly driven by the motive to explore foreign knowledge sources

to overcome deficiencies grounded in their inferior knowledge base at home rather than by

knowledge exploitation strategies (Awate et al., 2015). Thus, EMNCs may use their R&D

internationalization as a catch-up strategy (Awate et al., 2015; Brandl and Mudambi, 2014;

Williamson, 2014), rather than a strategy of exploiting existing firm-specific advantages, which

was assumed to be at the basis of earlier internationalization theories (e.g., Rugman, 1981).

Hence, we support the view that EMNC internationalization is not a pure reiteration of earlier

decades’ AMNCs’ internationalization (Cuervo-Cazurra and Ramamurti, 2014).

There are multiple aspects that call for an augmentation of existing internationalization

theories with respect to explaining current internationalization of EMNCs. First of all, today

EMNCs have opportunities to actually source knowledge from economies with advanced

technologies. Such learning opportunities have not or to a lesser extent been available when

firms from advanced economies started their internationalization and, hence, these earlier

AMNCs’ internationalization was naturally less concerned with knowledge exploration but

needed to focus more on knowledge exploitation. The context of EMNCs’ internationalization

differs from the context of AMNC’s earlier internationalization in various further aspects.

Decreased barriers for internationalization, home-country advantages in emerging economies

related to vary rare natural resources (e.g., rare-earth elements), experience in dealing with

political instability, access to cheap (state) capital, and the opportunity to build up a significant

financial power in their large domestic emerging markets (especially in India and China)

(Buckley et al., 2007, Ramamurti, 2012; Williamson and Zeng, 2009), may allow EMNCs to

more aggressively source foreign knowledge to catch-up with AMNC competitors even if they

28

do not possess firm-specific technological advantages that were assumed to be key for (A)MNC

internationalization. Taken together, we give empirical support for the insistence to adjust

existing theories on MNC internationalization to the peculiarities of EMNC internationalization.

Second, and to some extent a boundary condition to our first contribution, our findings

indicate that technological inferiority, being grounded in the home country and the stage of

evolution (here infant) as an MNC (Cuervo-Cazurra and Genc, 2008; Ramamurti and Hillemann,

2018), is not the only mechanism leading to a stronger focus on a knowledge exploration strategy

within EMNCs’ international R&D activities. We find robust within country-group heterogeneity

among EMNCs and AMNCs. For example, Chinese firms are strongly focusing on knowledge

exploration. While Chinese firms differ from US and German firms regarding knowledge

exploration, we do not find a significant difference between an AMNC and EMNC in the case of

US and Indian firms. Similar to Awate et al. (2015) we find a difference between Indian firms

and firms from a European country (Denmark for Awate and colleagues, Germany in this paper).

While only two countries in each group (EMNCs and AMNC, respectively) prevents us from a

deeper analysis of the country heterogeneity, institutional theory (North, 1990; Peng, 2002) may

help to explain the differing focus on knowledge exploration among MNCs from various

emerging economies. This is in line with the expectation that MNCs’ strategies are not

independent of their heterogeneous home country conditions (Hennart, 2012; Luo and Wang,

2012; Luo and Zhang, 2016) and the view that EMNC catch-up processes are highly country-

specific (Brandl and Mudambi, 2014; Ramamurti and Singh, 2009). While Indian firms exhibit a

slightly slower development, resulting in a – so far – less intensive focus on knowledge

exploration with their international R&D activities, Chinese firms with a massive policy support

for technology exploration (Fan and Watanabe, 2006; Ramamurti and Hillemann, 2018) seem to

29

already have mastered certain stages or were able to leapfrog over some of them. As a

consequence, our findings indicate that researchers should refrain from declaring country

institutions homogenous and categorizing firms into overly large baskets, which mask firm-,

industry- and country-level heterogeneity (e.g., Brandl and Mudambi, 2014; Luo and Zhang,

2016). For knowledge exploitation, however, Chinese and Indian firms seem to share the

commonality that they have not yet built a sufficient knowledge-base at home that they could

exploit within their international R&D activities, e.g., through a market-seeking and exploitation

strategy (von Zedtwitz and Gassmann, 2002). In this case, technological capabilities seem to play

a more decisive role than institutional factors.

Third, the emergence of EMNCs has challenged existing IB theories explaining firm

internationalization (Buckley et al., 2007; Mathews, 2002; Narula, 2012). Aharoni (2014) and

Hernandez and Guillén (2018) suggest theorizing on firm-level characteristics, like the level of

technological advancement, that help distinguishing MNCs and upon which a contingency theory

of international business can be developed. While Makino et al. (2002) already suggest

technological leadership as a moderator for internationalization processes, we follow this route

and consider the technological position of MNCs as contingency for EMNC versus AMNC

strategies for the internationalization of R&D. On the one hand, we find no statistically

significant support that a firm’s technological position moderates the relationship between

EMNCs (vs. AMNCs) and the importance of a knowledge exploration strategy. Even for

technological leaders, EMNCs (and especially Chinese MNCs) explore more than their AMNC

counterparts. This finding may again suggest that besides technology-based arguments advocated

in the catch-up literature (e.g., Awate et al., 2015), the institutional context has a strong influence

on the importance firms allocate to knowledge exploration in their R&D internationalization.

30

Moreover, the fact that technologically leading EMNCs still focus stronger on knowledge

exploration than their AMNC counterparts, implies that they might not only catch-up with

AMNCs but potentially outrun them in the long run (Ramamurti and Hillemann, 2018). This

poses a potential threat to mature AMNCs. On the other hand, we find support for Narula’s

(2012) prediction that differences between EMNCs and AMNCs will diminish as EMNEs

evolve. In specific, the difference between both groups regarding R&D knowledge exploitation

diminishes with proximity to the technological frontier. This seems to hold for both EMNC

countries in our study and is therefore somewhat independent from country-specific institutional

factors. Hence, in the case of knowledge exploitation, technological capabilities seem to be the

main predictor of EMNC and AMNC differences.

5.2. Limitations

While our study sheds light on important aspects of EMNCs’ internationalization of R&D, it

yet faces some limitations of which we will discuss two in more detail. First, although the

explanatory variable, i.e. the country of origin, was not part of the survey but was derived from

secondary data and we took care to ensure anonymity of respondents, the cross-sectional nature

of the remaining data may nevertheless create some artificial correlations between other

explanatory and our dependent variables (cf., Podsakoff et al., 2003). We have further tried to

reduce the potential risks of common method biases by employing different response scales

within the survey and by aligning our questions with officially set standards for innovation

surveys (OECD, 2002, 2005). While securing desired anonymity, the confidentiality

requirements also prevent us from merging our data with additional data from other sources.

Future research comparing EMNCs and AMNCs may find it worthwhile to go beyond the R&D

variables that we have employed and merge additional information to their survey, e.g., patenting

31

activities and balance sheet information, which may allow them to base their analyses on an even

richer data. In sum and despite the data limitations, we believe that because our dataset is one of

the first larger quantitative surveys comparing EMNC versus AMNC R&D internationalization

strategies and the most important variable for our analyses, EMNC, is exogenous and

independent of the survey, our analyses can provide important insights for scholars to set up

more fine-grained boundary conditions for internationalization theories (Aharoni, 2014;

Hernandez and Guillén, 2018).

Second, our study builds on one static point in time and is, thus, limited in its ability to

display and analyze the dynamism of technological catch-up. Although we go beyond existing

research by using a larger cross-section and multi-country sample, panel data with the relevant

information would enable future research to analyze the dynamic catch-up of EMNCs over time

more thoroughly and from a process theory point of view (Ramamurti and Hillemann, 2018).

Panel data would help to identify and confirm fundamental drivers, strategies and management

practices that go beyond a single firm and industry analysis (Awate et al., 2012, 2015). While

limited with respect to the temporal dimension of our data, our larger quantitative survey and our

analyses already offer an important next step to better understand EMNCs’ internationalization

of R&D and related strategies.

6. Conclusion

Our study compares EMNCs with AMNCs in their R&D internationalization strategies. We

complement previous rich and in-depth qualitative case studies, by building on a large

quantitative survey that approached MNCs from two emerging and two advanced economies, i.e.

China, India, the United States, and Germany. We confirm that EMNCs compared to AMNCs

focus more on knowledge exploration and less on knowledge exploitation when they

32

internationalize their R&D. Furthermore, we show that for firms that are located closer to the

technological frontier, the difference between AMNCs and EMNCs regarding knowledge

exploitation diminishes, while we do not find statistical support for a similar effect regarding

knowledge exploration. Furthermore, by further exploring country-level heterogeneity within the

groups of EMNCs and AMNCs, respectively, we uniquely contribute to the literature on

technology catch-up and the internationalization of multinational companies.

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37

Tables

Table 1. Descriptive statistics and pairwise correlation.

Variables Mean S.D. Min Max 1 2 3

1 Knowledge exploration strategy 2.45 0.62 1.00 3.00 1

2 Knowledge exploitation strategy 2.22 0.66 1.00 3.00 0.37* 1

3 Relative knowledge exploration 0.53 0.09 0.29 0.75 0.51* -0.60* 1

4 EMNC 0.47 0.50 0 1 0.17* -0.17* 0.30*

5 Firm age (ln) 3.64 0.76 1.39 4.98 -0.14* 0.11* -0.21*

6 Firm size (ln) 6.97 1.33 1.79 11.41 0.21* 0.03 0.16*

7 R&D capacity 0.08 0.12 0.00 0.90 0.1 0.03 0.05

8 Performance satisfaction 4.08 0.70 1 5 0.19* 0.1 0.07

9 Technological leadership 3.60 0.89 1 5 0.29* 0.15* 0.12*

10 Cost strategy 1.86 0.68 1.00 3.00 0.29* 0.56* -0.24*

11 Export share

No export 0.07 0.25 0 1 0.18* 0.10* 0.07

1-25 % 0.43 0.50 0 1 -0.02 -0.06 0.04

26-50 % 0.30 0.46 0 1 -0.15* -0.01 -0.12*

51-75 % 0.10 0.31 0 1 -0.10* -0.01 -0.08

>75 % 0.09 0.29 0 1 -0.03 -0.07 0.04

12 International R&D experience

1-5 years 0.23 0.42 0 1 -0.09 -0.05 -0.01

6-10 years 0.17 0.37 0 1 0.00 0.07 -0.07

11-15 years 0.10 0.30 0 1 0.14* 0.20* -0.06

>15 years 0.44 0.50 0 1 -0.06 0.02 -0.07

not reported 0.07 0.25 0 1 -0.05 -0.25* 0.17*

N= 374; Note: * indicates significance levels at p<0.05. Further correlations reported in the appendix (Appendix A).

38

Table 2. Knowledge exploration, exploitation and relative exploration R&D internationalization strategy of EMNCs versus AMNCs.

DV: Knowledge exploration

strategy

DV: Knowledge exploitation

strategy

DV: Relative knowledge

exploration

OLS OLS OLS

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 Model 9

EMNC (Hyp. 1 a,b,c) 0.26** 0.30*** -0.21** -0.21** 0.32*** 0.35***

(0.10) (0.10) (0.08) (0.09) (0.10) (0.10)

INDIA (vs. China) -0.16** 0.10 -0.18**

(0.07) (0.07) (0.07)

USA (vs. Germany) 0.19*** 0.05 0.10

(0.07) (0.06) (0.07)

Firm age (ln) -0.12 -0.07 0.01 0.19*** 0.15** 0.14** -0.21*** -0.15* -0.09

(0.08) (0.08) (0.08) (0.06) (0.06) (0.06) (0.08) (0.08) (0.09)

Firm size (ln) 0.10*** 0.07** 0.03 -0.06* -0.03 -0.02 0.11*** 0.07* 0.04

(0.03) (0.03) (0.04) (0.03) (0.03) (0.04) (0.04) (0.04) (0.04)

R&D capacity 0.84** 0.82** 0.57 0.05 0.06 0.08 0.52 0.49 0.29

(0.36) (0.35) (0.35) (0.28) (0.27) (0.27) (0.37) (0.35) (0.35)

Performance satisfaction 0.16** 0.13* 0.15* 0.06 0.07 0.06 0.05 0.02 0.04

(0.08) (0.08) (0.08) (0.07) (0.07) (0.07) (0.09) (0.09) (0.09)

Technological leadership 0.16*** 0.14*** 0.13*** 0.05 0.06 0.06 0.09 0.07 0.05

(0.05) (0.05) (0.05) (0.04) (0.04) (0.04) (0.05) (0.05) (0.05)

Exploitation strategy 0.28*** 0.29*** 0.28***

(0.06) (0.06) (0.06)

Exploration strategy 0.23*** 0.24*** 0.24***

(0.05) (0.05) (0.05)

Cost strategy 0.07 0.08 0.07 0.49*** 0.47*** 0.44*** -0.29*** -0.27*** -0.25***

(0.06) (0.06) (0.06) (0.05) (0.05) (0.05) (0.05) (0.05) (0.06)

Export share

1-25 % 0.13 0.13 0.07 0.17 0.16 0.13 -0.04 -0.03 -0.06

(0.19) (0.19) (0.18) (0.20) (0.20) (0.20) (0.21) (0.21) (0.21)

26-50 % -0.03 -0.03 -0.05 0.17 0.17 0.15 -0.15 -0.15 -0.16

(0.19) (0.19) (0.18) (0.20) (0.20) (0.20) (0.21) (0.21) (0.21)

51-75 % -0.28 -0.28 -0.26 0.28 0.27 0.24 -0.43* -0.42* -0.39

(0.23) (0.22) (0.22) (0.22) (0.22) (0.22) (0.24) (0.24) (0.24)

39

> 75 % -0.37 -0.33 -0.33 0.28 0.25 0.21 -0.47* -0.42* -0.40*

(0.23) (0.22) (0.21) (0.22) (0.22) (0.23) (0.24) (0.24) (0.23)

International R&D experience

6-10 yrs -0.15 -0.10 -0.04 -0.02 -0.06 -0.07 -0.04 0.02 0.08

(0.15) (0.16) (0.16) (0.15) (0.15) (0.15) (0.17) (0.17) (0.18)

11-15 yrs 0.06 0.09 0.11 0.36** 0.32* 0.32* -0.25 -0.20 -0.19

(0.20) (0.20) (0.20) (0.17) (0.17) (0.17) (0.22) (0.22) (0.22)

> 15 yrs 0.05 0.11 0.13 0.17 0.12 0.09 -0.08 0.00 0.03

(0.14) (0.14) (0.14) (0.13) (0.13) (0.13) (0.15) (0.15) (0.16)

Not reported -0.27 -0.30 -0.29 0.17 0.20 0.13 -0.30 -0.33* -0.28

(0.19) (0.19) (0.20) (0.15) (0.15) (0.16) (0.18) (0.19) (0.20)

Industry dummies Included Included Included Included Included Included Included Included Included

Constant -0.89* -0.92* -1.00** -0.76* -0.71* -0.64* -0.01 -0.07 -0.16

(0.51) (0.50) (0.49) (0.39) (0.39) (0.39) (0.52) (0.52) (0.51)

N 374 374 374 374 374 374 374 374 374

R-squared (F-Test) 0.290*** 0.300*** 0.320*** 0.423*** 0.430*** 0.433*** 0.183*** 0.198*** 0.212***

Note: Variables knowledge exploration strategy, knowledge exploitation strategy, relative knowledge exploration, technological leadership and cost

strategy standardized before entering into regression to ease interpretation of effects based on standard deviations. Base categories for export share (no

export) and for international R&D experience (1-5 years). Cluster-robust standard errors in parentheses.

Significance levels: *** p<0.01, ** p<0.05, * p<0.1

40

Table 3. Knowledge exploration, exploitation and relative exploration R&D internationalization strategy of EMNCs versus AMNCs

and the moderating effect of firm’s relative technological position (technological leadership).

DV: Knowledge exploration

strategy

DV: Knowledge exploitation

strategy

DV: Relative knowledge

exploration

OLS OLS OLS

Model 10 Model 11 Model 12 Model 13 Model 14 Model 15 Model 16 Model 17 Model 18

EMNC 0.26** 0.30*** 0.29*** -0.23*** -0.22** -0.24** 0.34*** 0.36*** 0.35***

(0.10) (0.10) (0.11) (0.09) (0.09) (0.09) (0.10) (0.11) (0.11)

EMNC * Technological leadership -0.09 -0.06 -0.06 0.17** 0.17** 0.18** -0.20** -0.18* -0.18*

(Hyp. 2 a,b,c) (0.09) (0.09) (0.09) (0.08) (0.08) (0.08) (0.10) (0.10) (0.10)

INDIA (vs. China) -0.16** -0.18** 0.10 0.10 -0.18** -0.19**

(0.07) (0.08) (0.06) (0.06) (0.07) (0.08)

USA (vs. Germany) 0.18** 0.18** 0.07 0.06 0.08 0.08

(0.07) (0.07) (0.06) (0.07) (0.07) (0.07)

INDIA (vs. China) *

Technological 0.08 -0.02 0.06

leadership (0.07) (0.06) (0.07)

USA (vs. Germany) *

Technological -0.01 -0.04 -0.01

leadership (0.06) (0.06) (0.07)

Firm age (ln) -0.07 0.00 0.00 0.15** 0.15** 0.14** -0.15* -0.09 -0.10

(0.08) (0.08) (0.08) (0.06) (0.06) (0.07) (0.08) (0.09) (0.09)

Firm size (ln) 0.07* 0.03 0.03 -0.03 -0.02 -0.02 0.07* 0.04 0.04

(0.03) (0.04) (0.04) (0.03) (0.03) (0.04) (0.04) (0.04) (0.04)

R&D capacity 0.79** 0.56 0.56 0.11 0.11 0.08 0.43 0.26 0.26

(0.34) (0.35) (0.34) (0.26) (0.27) (0.27) (0.33) (0.34) (0.34)

Performance satisfaction 0.13 0.14* 0.14* 0.08 0.08 0.08 0.01 0.03 0.02

(0.08) (0.08) (0.08) (0.07) (0.07) (0.07) (0.09) (0.09) (0.09)

Technological leadership 0.19*** 0.15** 0.15** -0.01 -0.02 -0.03 0.16** 0.14* 0.14*

(0.07) (0.07) (0.07) (0.06) (0.06) (0.06) (0.08) (0.08) (0.07)

Exploitation strategy 0.29*** 0.29*** 0.29***

(0.06) (0.06) (0.06)

Exploration strategy 0.24*** 0.24*** 0.24***

(0.05) (0.05) (0.05)

Cost strategy 0.07 0.07 0.06 0.48*** 0.45*** 0.45*** -0.28*** -0.26*** -0.26***

41

(0.06) (0.06) (0.06) (0.05) (0.05) (0.05) (0.05) (0.06) (0.06)

Export share

1-25 % 0.12 0.07 0.07 0.17 0.14 0.13 -0.05 -0.07 -0.07

(0.18) (0.18) (0.18) (0.20) (0.20) (0.20) (0.20) (0.20) (0.20)

26-50 % -0.04 -0.06 -0.06 0.19 0.17 0.16 -0.17 -0.17 -0.17

(0.18) (0.18) (0.18) (0.20) (0.20) (0.20) (0.20) (0.20) (0.20)

51-75 % -0.29 -0.27 -0.26 0.29 0.26 0.26 -0.45* -0.42* -0.41*

(0.22) (0.22) (0.22) (0.22) (0.22) (0.22) (0.24) (0.24) (0.24)

> 75 % -0.34 -0.33 -0.33 0.26 0.22 0.19 -0.43* -0.40* -0.40*

(0.22) (0.21) (0.21) (0.22) (0.23) (0.23) (0.23) (0.23) (0.23)

International R&D experience

6-10 yrs -0.10 -0.03 -0.02 -0.07 -0.08 -0.08 0.03 0.08 0.09

(0.16) (0.16) (0.16) (0.15) (0.15) (0.15) (0.17) (0.17) (0.18)

11-15 yrs 0.10 0.11 0.13 0.30* 0.29* 0.29* -0.17 -0.16 -0.15

(0.20) (0.20) (0.20) (0.17) (0.17) (0.17) (0.22) (0.22) (0.22)

> 15 yrs 0.13 0.14 0.15 0.10 0.06 0.06 0.03 0.06 0.07

(0.14) (0.14) (0.15) (0.13) (0.13) (0.13) (0.15) (0.15) (0.16)

Not reported -0.29 -0.28 -0.26 0.19 0.12 0.10 -0.32* -0.27 -0.25

(0.20) (0.21) (0.21) (0.15) (0.16) (0.17) (0.19) (0.21) (0.21)

Industry dummies Included Included Included Included Included Included Included Included Included

Constant -0.88* -0.97** -0.98** -0.78* -0.72* -0.67* 0.02 -0.08 -0.09

(0.50) (0.49) (0.50) (0.39) (0.39) (0.39) (0.51) (0.50) (0.51)

N 374 374 374 374 374 374 374 374 374

R-squared (F-Test) 0.302*** 0.321*** 0.323*** 0.436*** 0.440*** 0.441*** 0.207*** 0.219*** 0.221***

Note: Variables knowledge exploration strategy, knowledge exploitation strategy, relative knowledge exploration, technological leadership and cost

strategy standardized before entering into regression to ease interpretation of effects based on standard deviations. Base categories for export share (no

export) and for international R&D experience (1-5 years). Cluster-robust standard errors in parentheses.

Significance levels: *** p<0.01, ** p<0.05, * p<0.1

42

Figures

Figure 1. Economic indicators for China, India, the US and Germany.

0

1

2

3

2005 2010 2015

0

1

2

3

2005 2010 2015

0

5

10

15

20

0

20

40

60

0

1

2

3

2005 2010 2015

A) GDP (in tn USD) B) GDP per capita (in tsd USD)

DEU

CHN

USA

IND

DEU

CHN

USA

IND

C) Export(in tn USD) D) Import (in tn USD)

E) EPO Patent applications (in tsd) F) R&D expenditures / GDP (in %)

DEU

CHN

USA

IND

DEU

CHN

USA

IND

DEU

CHN

USA

IND

DEU

CHN

USA

IND

Notes: A) GDP in current USD (World Bank national accounts data, OECD National Accounts

data files); B) GDP per capita in current USD (World Bank national accounts data, OECD

National Accounts data files, CIA World Factbook); C) & D) Exports/Imports of goods and

services, BoP in current USD (International Monetary Fund, Balance of Payments Statistics

Yearbook); E) European patent applications filed with the European Patent Office (EPO),

statistics based on first-named applicant (EPO statistics); F) Public and private current and

capital R&D expenditures as percentage of GDP (United Nations Educational, Scientific, and

Cultural Organization (UNESCO) Institute for Statistics). Information on R&D expenditures/

GDP were not available for all recent years.

43

Figure 2. Country-specific levels of R&D internationalization strategies

Figure 3. Technological leadership as moderator: Conditional effect of EMNC versus AMNC.

CHN IND USA DEUCHN IND USA DEU-0.6

-0.4

-0.2

0

0.2

0.4

0.6

CHN IND USA DEU

Knowledge exploration Knowledge exploitation Relative exploration

Imp

ort

an

ceo

f st

rate

gie

s

(rela

tive

tosa

mple

mea

n)

Note: Reporting predicted levels of dependent variables for all countries and the 90%- confidence interval

(based on Table 3, Models 3, 6, 9). Note that dependent variables were standardized and, hence, effects are

relative to sample mean and in multiples of one standard deviation.

-0.4

0

0.4

0.8

1.2

1.6

-0.2

0.2

0.6

1

-1.2

-0.8

-0.4

0

0.4

Knowledge exploration Knowledge exploitation Relative exploration

Dif

f. b

etw

een

EM

NC

an

dA

MN

C

Note: We plot the estimated effect of EMNC versus AMNC and the 90%-confidence interval conditioned on the

level of technological leadership for the observed range of technological leadership. Technological leadership is

standardized such that 0 refers to the sample mean and -1 and +1 refer to minus respectively plus one standard

deviation (based on Table 5, Models 12, 15, 18).

-1 0 +1 -1 0 +1 -1 0 +1 -0.2 -1.2 -0.4

Technological leadership Technological leadership Technological leadership

44

Appendix

Appendix A. Detailed pairwise correlation.

Variables 1 2 3 4 5 6 7 8 9 10 11a 11b 11c 11d 11e 12a 12b 12c 12d

1 Knowl. Exploration Strat. 1

2 Knowl. Exploitation Strat. 0.3661* 1

3 Relative Knowl. Exploration 0.5112* -0.5996* 1

4 EMNC 0.1737* -0.1722* 0.2980* 1

5 Firm age (ln) -0.1380* 0.1073* -0.2118* -0.4054* 1

6 Firm size (ln) 0.2106* 0.0253 0.1606* 0.3905* -0.1752* 1

7 R&D capacity 0.0975 0.0313 0.0496 -0.0117 -0.0825 -0.1660* 1

8 Performance satisfaction 0.1922* 0.0992 0.0655 0.1491* -0.0162 0.1051* 0.0747 1

9 Technological leadership 0.2851* 0.1495* 0.1187* 0.2376* -0.1600* 0.2602* -0.0624 0.2139* 1

10 Cost strategy 0.2905* 0.5582* -0.2404* -0.1058* -0.0582 0.1286* 0.0142 0.0164 0.1406* 1

11a Export share - no export 0.1826* 0.1038* 0.0683 0.0083 -0.04 0.0067 0.0155 -0.0432 0.0603 0.1685* 1

11b Export share - 1-25 % -0.0171 -0.0626 0.04 0.0623 0.0146 0.0743 -0.0049 0.0515 -0.0148 -0.0947 -0.5788* 1

11c Export share - 26-50 % -0.1451* -0.008 -0.1238* -0.0938 0.1744* -0.0885 0.0046 -0.0506 -0.0623 -0.098 -0.2983* -0.2259* 1

11d Export share - 51-75 % -0.1049* -0.007 -0.084 -0.0559 -0.0061 0.0399 -0.0883 0.0182 0.0379 -0.0289 -0.2764* -0.2094* -0.1079* 1

11e Export share - >75 % -0.0324 -0.0729 0.0389 0.0479 -0.1539* -0.0878 0.0742 0.0317 -0.0597 -0.0065 -0.2340* -0.1772* -0.0913 -0.0846 1

12a Intl. R&D exp. - 1-5 years -0.0896 -0.0507 -0.0114 -0.0746 0.0847 0.001 0.0003 -0.0084 0.0473 0.0094 -0.085 0.0641 0.0832 -0.0159 -0.0329 1

12b Intl. R&D exp. - 6-10 years 0.0026 0.0653 -0.0709 -0.0433 -0.0028 -0.059 0.0183 -0.0756 -0.1020* -0.0222 -0.0728 0.053 0.0335 -0.0425 0.0547 -0.1477* 1

12c Intl. R&D exp. - 11-15 years 0.1394* 0.1976* -0.0579 -0.2070* 0.1935* 0.0679 -0.0548 0.1030* 0.1013 0.1699* 0.0648 -0.0116 -0.0371 0.0767 -0.1502* -0.3939* -0.2928* 1

12d Intl. R&D exp. - >15 years -0.0584 0.024 -0.0708 0.1337* 0.005 -0.0153 -0.04 0.0317 -0.0117 0.0575 0.0037 -0.0609 0.0138 -0.0102 0.0998 -0.1193* -0.0887 -0.2365* 1

12e Intl. R&D exp. - not reported -0.0525 -0.2488* 0.1706* 0.2613* -0.3040* -0.03 0.075 -0.0792 -0.0819 -0.2271* 0.0481 -0.0444 -0.0617 -0.0402 0.1082* -0.2436* -0.1811* -0.4829* -0.1463*

N= 374; * indicates significance levels at p<0.05