Innovation and domestic multinationals
Technical University of Denmark
VTT Technology Studies
DOMUS - The effect of international activities of domestic companies in the Nordic countries
Globalisation of markets, ownership and control, demand structures and innovation inputs are affecting a wider range of economic activities than ever before. This study will look at the relationship between central characteristics of corporate control and innovation performance, with a focus on the role of domestic multinationals.
There are several reasons for this focus: Firstly, domestic multinationals are major actors in the economic systems of all the Nordic countries.
Secondly, statistical evidence suggests that the presence of multinationals are of increasing importance in a widening range of industries, through mergers and acquisitions, through stronger integration within traditional trade regions and as a consequence of changes in international regulation.
Thirdly, domestic multinationals may be seen as representative mirror images of foreign multi-nationals, other things being equal.
Lastly, domestic ownership makes ownership and control more readily available for public regulation and priorities.
The Nordic FOTON project pointed at a difference in the integration of and performance of innovation related activities between enterprises that are domestically controlled as opposed to foreign controlled.
The fact that there are statistically significant differences between uninationals (i.e. companies with presence in one country only) and multinationals, between domestic or foreign controlled firms and - implicitly - between large and small companies raises the question of which of these statistical determinants are causal factors, which are effects and which are proxy measures for other hidden variables.
The results describe domestic owned - and to some extent Nordic owned - as more integrated into the national economic and innovation policy system. The stronger integration may reflect several factors, which have to be tested.
On the one hand, the FOTON project indicated that domus seem to have a relatively strong impact on the innovation capability of the national innovation system (NIS).
In general domestic multinationals tend to be larger companies. Moreover, large companies are normally more able to invest in innovation activities than smaller firms - and this especially applies to R&D activities. This is due to the fact that they normally have more financial and human resources.
Large companies have normally a higher absolute number of and/or a higher share of highly skilled staff and personnel with higher education. Highly skilled and educated staffs are more inclined to maintain a more intense and sophisticated interaction with other companies and institutions.
More financial and human resources also mean that they are able to take on more risky projects without putting the survival of the company at stake. Hence it is a reasonable assumption that such companies play important roles in the NIS and have important effects on the overall welfare development in a country.
On the other hand, certain industrial trends may have the effect of decreasing the interaction between domus and the NIS. Extensive outsourcing is a well-known managerial tool and organizational solution for minimising costs.
The most common type of outsourcing is probably subcontracting of support functions, but also functions that may be called core activities of the company, parts of production and assembly, may be outsourced.
In theory domestic multinationals that should follow this managerial practice may find themselves in a situation where their engagement in and control over their industrial knowledge base deteriorate. The result is a possible decreased ability to derive advantage from the NIS. And the other way around, the company may prove to have decreased impact on the performance of the NIS.
The final reports will be published in 2006.