Does Multinationality Affect the Propensity to Innovate? An Analysis of the Third UK Community Innovation Survey

Abstract

The paper is developed at the interface between internationalization and innovation studies. It utilizes data on innovation from the UK Community Innovation Surveys 3 and 2 (CIS3 and CIS2) to assess whether multinationality affects the innovation propensity of surveyed enterprises. The indicators of innovation propensity—our dependent variables—are taken from the following CIS sets of variables: innovation outputs; innovation inputs; innovation outcomes (patent applications); innovation continuity/sustainability. The latter element is considered to be the ability of the enterprise to sustain innovation over a long period of time and the relevant variable is derived from both CIS3 and 2 data. This allows the paper to introduce dynamic elements into the analysis. Four hypotheses are developed and tested. Our main hypothesis states that multinationality per se (i.e. being part of a multinational company network) affects the propensity to innovate. We also test for three sub‐hypotheses related to characteristics of multinationality: belonging to a group vs being independent; degree of multinationality; being part of a foreign vs domestic multinational. The results show that all those CIS enterprises that belong to a multinational corporation—whether UK or foreign—are more likely to exhibit innovation propensity; they are also more likely to engage in innovation activities on a continuous basis.

Key Words:

• Multinational companies
• innovation
• Community Innovation Survey UK
• innovation activity in the UK
• foreign‐owned companies
• degree of multinationality

Jel Classification:

• F23
• O12
• 19
• 30
• 31

Acknowledgements

We are grateful to Davide Castellani, Simona Iammarino, Lucia Piscitello and Antonello Zanfei and the editor for useful comments on earlier drafts. We have also benefited from comments made at the presentation of the paper at the following conferences: SIEPI Conference, ‘Empirical Studies on Innovation in Europe’ held in Urbino, Italy, 1–2 December 2003; DRUID’s Winter Conference held in Åalborg, Denmark, 22–24 January 2004; the 10th International Schumpeter Society Conference held in Milan, 9–12 June 2004 and Workshop on ‘Global Technology: Multinational Corporations and Innovation processes’ Torino, 1 October 2004; TripleHelix 5, Torino, 18–21 May 2005; the Open University IKD Centre, 21 July 2005.

Notes

1. Other databases have also been used to explore the issue of foreign versus UK MNCs in terms of their innovative behaviour: for example Tomlinson & Coombs (1998) use the Confederation of British Industry (CBI) database.

2. Castellani & Zanfei (2006: part II) and Iammarino et al. (2006) consider both foreign and domestic (Italian) MNCs in relation to innovation performance and perceived obstacles to innovation, respectively.

3. More on the IPLC and its critique by Cantwell in Ietto‐Gillies (2005, chs 6 and 12).

4. Multinationality is defined in terms of direct business activities, through ownership of assets, in foreign countries of a company legally registered—and with headquarters—in another country. It should be stressed that a company with no direct operations abroad could, nonetheless, have imports and/or exports relations with other countries.

5. According to the CIS an enterprise is defined as: ‘… the smallest combination of legal units that is an organizational unit producing goods or services, which benefits from a certain autonomy in decision making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit’ (see UK CIS2 questionnaire, p. 1).

6. Compared to the whole of the CIS our sample contains a higher proportion of large enterprises. Details on this are in Frenz (2002).

7. WoW defines subsidiaries by a 50% or more ownership. This constraint prevents us from including among the MNCs all those with associates abroad, i.e. with ownership stakes of 10–50%. Our sample of MNCs is, therefore, underestimated. Nonetheless the problem may be partly compensated by the fact that the data on WoW are biased towards reporting MNC rather than smaller uninational companies.

8. Of these 137 enterprises 43 originate from the US, 57 from the EU, 7 from other European countries, 26 from other developed countries, eight from developing countries and three are registered in tax havens (Bermuda and the Cayman Islands). It should be noted that the country of registration does not always coincide with the country of origin of the company.

9. We calculated the same regressions using the log of turnover and found that the results were not significantly different from the result generated when using employment figures as a measure of enterprise size.

10. The regression results on the sectors are available from the authors on request. They are not included here for the sake of brevity and clarity in the presentation of the results in Tables 4 and 5.

11. John Cantwell pointed out to us that the specificity of the country may also manifest in terms of the industries it is involved in.