Impact of international and home-based research and development (R&D) on innovation performance

The recent decade has shown a surge of firms globalizing their innovation activities. A major motive underlying the decision to shift corporate R&D activities abroad is that the internationalization of R&D increases chances to participate in international knowledge sharing. Absorbing knowledge from abroad is aimed at enhancing the innovativeness of firms and consequently their competitiveness. This paper addresses the question whether international R&D is conducive to a firm’s innovation performance by using two different innovation output measures. It analyzes first whether a firm that conducts international R&D is more likely to introduce (different types of) new products and second whether it achieves a higher sales growth with innovative products. The study further contributes to the literature by investigating how different degrees of R&D internationalization impact on the innovation indicators. It employs a large data set from the Mannheim Innovation Panel which represents the German part of the Community Innovation Survey, and it retains about 2100 observations. The econometric results show that firms with both domestic R&D and foreign R&D activities are more likely to launch new products (firm and market novelties) than firms with home-based R&D only. They furthermore tend to be more successful in terms of sales growth with firm novelties. However, no differences could be found for sales growth with market novelties. The degree of R&D internationalization has an inverse u-shaped effect on both innovation output measures. A moderate number of R&D locations abroad have the strongest influence on innovation outcome and sales growth with new products while sales growth with firm novelties benefits from a high number of R&D locations.