International Decentralization and Diversification of R&D and Innovative Performance

This paper examines the effects of the international decentralization and diversification of an MNE’s R&D activities on its innovative performance. We use an unbalanced panel dataset of 401 observations from 110 international firms operating in the energy industry over a period of six years (2007-2012) to support the argument that the international decentralization and diversification of R&D both have an inverted U-shaped relationship with a firm’s innovative performance. Our results also show that collaboration between R&D units located in different countries reduces both the positive effects and the challenges of international decentralization. These results contribute to our understanding of the international R&D activities of firms, and support the argument that there are benefits for a firm’s innovative performance in capturing location-specific advantages, together with opportunities and challenges in multi-location collaboration in the sampled firms.