R&D internationalization, product diversification and international performance for emerging market enterprises: An empirical study on Chinese enterprises

Accepted Manuscript R&D Internationalization, Product Diversification and International Performance for Emerging Market Enterprises: An Empirical Study on Chinese Enterprises Chunhui Tang, Yaojia Tang, Shengwei Su PII:

S0263-2373(18)30140-3

DOI:

https://doi.org/10.1016/j.emj.2018.11.003

Reference:

EMJ 1891

To appear in:

European Management Journal

Received Date: 24 November 2017 Revised Date:

10 November 2018

Accepted Date: 16 November 2018

Please cite this article as: Chunhui Tang, Yaojia Tang, Shengwei Su, R&D Internationalization, Product Diversification and International Performance for Emerging Market Enterprises: An Empirical Study on Chinese Enterprises, European Management Journal (2018), doi: 10.1016/j.emj.2018.11.003 This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and review of the resulting proof before it is published in its final form. Please note that during the production process errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

ACCEPTED MANUSCRIPT

R&D Internationalization, Product Diversification and International Performance for Emerging Market Enterprises: An Empirical Study on Chinese Enterprises Chunhui Tanga

Yaojia Tangb

Shengwei Sua

a

RI PT

Business Administration College (MBA), Zhejiang University of Finance & Economics, 18 Xueyuan Street 310018, Hangzhou, Zhejiang Province, P. R. China. b School of Economics, Zhejiang University of Finance & Economics, 18 Xueyuan Street 310018, Hangzhou, Zhejiang Province, P. R. China.

SC

Corresponding author: Yaojia Tang E-mail: [email protected] School of Economics, Zhejiang University of Finance & Economics, 18 Xueyuan Street 310018, Hangzhou, Zhejiang Province, P. R. China.

AC C

EP

TE D

M AN U

Funding: This work was supported by the Humanities and Social Sciences Foundation of Ministry of Education in China (17YJA630092) and the National Social Science Foundation in China (16AJY001).

ACCEPTED MANUSCRIPT

R&D Internationalization, Product Diversification and International Performance for Emerging Market Enterprises: An Empirical Study on Chinese Enterprises Abstract: One motivation behind R&D internationalization for emerging market

RI PT

multinationals (EM MNEs) is to expand international markets. This paper analyzes whether the R&D internationalization of EM MNEs contributes to an improvement in international

performance measured by foreign sales as a percentage of total sales (FSTS). Using panel data on China's listed companies, this paper introduces more scientific and normative indicators for

SC

measuring R&D internationalization in terms of geographic distribution (breadth) and overseas investment (depth). The results reveal an inverted U-shape relationship between R&D

internationalization and international performance that is initially positive and eventually becomes

M AN U

negative. Product diversification has a significant moderating effect on the relationship between R&D internationalization breadth and international performance.

Keywords: International performance, Product diversification, R&D internationalization, Emerging market enterprise

1. Introduction

TE D

R&D internationalization helps enterprises to organize and obtain technical resources from around the world, thereby creating opportunities for firms to transform from followers into leaders as emerging market multinationals (EM MNEs). As a means to achieve international technological dominance, increasing numbers of Chinese enterprises have acquired innovative resources

EP

worldwide by establishing foreign R&D institutions in recent years. For example, in the communications industry, Huawei has founded dozens of overseas R&D centers in the United

AC C

States, India, Sweden, and other countries, while in the home appliance industry, Hisense has seven R&D centers in many Western countries, including the United States, Germany, and Canada. They have gradually formed efficient global R&D networks and engaged in localized R&D activities based on local characteristics and consumptive habits. However, the penetration of these enterprises into the global market through R&D internationalization remains a significant but still relatively understudied phenomenon, and whether R&D internationalization can improve international performance remains a controversial issue. It has been argued that enterprises from emerging markets have different motives for engaging in R&D internationalization. von Zedtwitz and Gassmann (2002) suggested that R&D internationalization is mainly pursued for two reasons: to access local scientific and technological 1

ACCEPTED MANUSCRIPT tools and to access local markets and customers. While technologically driven motives for R&D internationalization can be defined as a form of technological exploration, market-driven motives can be defined as a form of technological exploitation (Di-Minin, Zhang, & Gammeltoft, 2012; Cantwell & Mudambi, 2005). Corresponding to the product life cycle hypothesis, a long-term view argues that advanced economy multinationals (AE MNEs) invest in R&D activities abroad

RI PT

mainly on account of local markets, and their R&D internationalization is mainly driven by market (Håkanson & Nobel, 1993; Patel & Vega, 1999; Laurens et al., 2015). In contrast, as emerging countries lack the technological resources necessary to compete with developed

countries, EM MNEs mainly engage in internationalization to access advanced technologies and

SC

knowledge available from developed countries and to utilize these to enhance their innovation

capabilities (Awate, Larsen, & Mudambi, 2015). For the past few years the effects of EM MNE internationalization R&D on innovation performance have received more attention in empirical

M AN U

studies (Chen, Huang, & Lin, 2012; Lien & Chen, 2015).

However, increasing numbers of studies show that it is equally important to understand market-driven motivations that affect EM MNEs. Di-Minin, Zhang, and Gammeltoft (2012) found that Chinese companies engage in R&D in Europe with dual motives driven by markets and technology, while technology-seeking no longer constitutes their only impetus for engagement in R&D internationalization. In recent years, there have been many successful examples of “reverse

TE D

innovation” occurring in emerging economies. For instance, in China and India, enterprises have transferred the innovation adopted first in domestic markets to developed countries (Govindarajan & Ramamurti, 2011). The technological exploitation and market-driven motivations of EM MNEs engaged in overseas R&D activities are directly related to the pursuit of reverse innovation, which

EP

helps enterprises to diffuse innovations to other parts of the world and to expand markets abroad. However, to the best of our knowledge, no empirical studies have investigated EM MNEs’

AC C

market-driven motives for engagement in R&D internationalization, and our study aims to present a theoretical framework to explain how the R&D internationalization of EM MNEs affects international performance.

We uses foreign sales as a percentage of total sales (FSTS) as a measure of international

performance given that this paper focuses on market-driven motives behind engagement in R&D internationalization. Our empirical approach utilizes two important indicators of internationalization (Hitt, Bierman, & Uhlenbruck, 2006) to measure the degree of R&D internationalization: breadth (the geographic distribution of enterprises’ R&D resources) and depth (overseas investment of enterprises’ R&D resources). Prior research has identified that product diversification moderates the relationship between internationalization and performance (Hitt, 2

ACCEPTED MANUSCRIPT Hosskisson, & Kim, 1997; Geringer, Tallman, & Olsen, 2000; Kumar, 2009) and renders the relationship more complex. However, we know little about how product diversification affects the relationship between R&D internationalization and international performance. To better understand the complexities of the effects of R&D internationalization and variations found between enterprises, our research verifies the contingency perspective, examine the moderating

RI PT

effect of product diversification on the relationship between R&D internationalization and international performance.

After years of rapid growth, as one of the “golden bricks,” China has become the second largest economy in the world and is regarded as the leader in the development of emerging

SC

economies. The R&D internationalization of Chinese enterprises is representative and typical,

studies in the Chinese context can provide a strong reference for other EM MNEs. We use a panel dataset for 70 listed companies of China's A-share market covering a period of five years (2010–

M AN U

2014) to test this framework. Our findings suggest there are significant correlations between R&D internationalization and international performance, and that product diversification may moderate this relationship. This paper contributes to the literature on R&D internationalization in several ways. First, examining issues of R&D internationalization based on firm-level data for China will improve understanding of the importance of R&D internationalization in the context of an emerging market economy. Second, the empirical study of effects of R&D internationalization on

TE D

international performance contributes a fresh theoretical perspective on the ways in which EM MNEs can expand overseas markets. Third, we identify both significant benefits and costs that stem from foreign R&D activities and develop a theoretical framework to explain how these benefits and costs change and jointly determine international performance at different stages of

EP

R&D internationalization. Finally, our exploration of the moderating role of product diversification complements a current gap in knowledge on contingency effects on the relationship

AC C

between R&D internationalization and performance in the empirical evidence.

2. Theoretical background and research hypothesis 2.1. International expansion of emerging market enterprises Emerging market economies (e.g., China and India) are characterized by their unique

domestic market opportunities and considerable market potential (Luo & Wang, 2012). While large-scale and complex segments of home markets enhance product development capabilities at a high performance-cost ratio (Govindarajan & Ramamurti, 2011; Luo, Sun, & Wang, 2011), inward internationalization (via home country joint ventures, original equipment manufacturing (OEM) and FDI technology spillovers) offers EM MNEs opportunities to accumulate knowledge required for internationalization at home (Luo & Tung, 2007). Therefore, when facing new technological, 3

ACCEPTED MANUSCRIPT industrial and global opportunities, EM MNEs can engage in leapfrogging for international expansion (Lee & Lim, 2001; Cuervo-Cazurra, 2011) while outward international expansion is considered more "risky" (Ramamurti, 2012). A key driver for outward international expansion is access to knowledge spillovers from local enterprises and institutions in the host countries. Knowledge spillover is a process of unconscious

RI PT

knowledge dissemination through direct or indirect interaction and communication among the firms (Caniëls & Verspagen, 2001). Spillover effects are determined by the externalities of

knowledge. Geographical and spatial proximity provides the opportunities for meeting, contacting and communicating. Collaboration, imitation, competition and the mobility of high-level talents

SC

bring greater external effects to open innovation enterprises (Aldieri, Sena, & Vinci, 2018).

Because of the same standards and values, geographically close enterprises are more willing to share knowledge, which could facilitate the diffusion of knowledge, particularly tacit or

M AN U

un-codified knowledge. That is knowledge spillovers have the regional features, and the cost of transmitting knowledge rises with distance (Audretsch & Feldman, 1996). Therefore, internationalization helps EM MNEs obtain foreign advanced knowledge and strengthen their competitive advantage.

However, due to considerable differences between the geographical, cultural, technological and institutional features of home and host countries, subsidiaries of MNEs entering the

TE D

international market inevitably face an inherent competitive disadvantage and additional costs incurred in the cross-border transfer of technical knowledge. Compared to mature MNEs, due to a lack of experience, credit, managerial competence and technological capabilities, EM MNEs experience to more liability of foreignness resulting from interactions between market and

EP

non-market factors of home and host countries (Zaheer, 1995; Zaheer & Mosakowski, 1997). The liability of foreignness is fundamental reason impeding EM MNEs from getting knowledge

AC C

spillovers from the host country and obtaining higher enterprise performance. It is thus necessary to develop new perspectives for understanding the international expansion of EM MNEs (Gammeltoft, Barnard, & Madhok, 2010). 2.2. Benefits and costs of R&D internationalization The knowledge-based theory that views firms as an open social system integrating internal

and external knowledge resources can be used to explain the benefits from geographic R&D expansion. Both exploitation and exploration are types of learning activities, which are also critical activities in R&D internationalization. Exploitation is “the refinement and extension of existing competencies, technologies and paradigms” (March, 1991), while exploration means to “create new knowledge through search, discovery, novelty, and experimentation” (Holmqvist, 4

ACCEPTED MANUSCRIPT 2004). Moving geographically closer to foreign markets provides an opportunity for enterprises to adapt existing, domestically developed products or introduce new products to local markets (Rahko, 2016). Overseas R&D subsidiaries absorb and transform the knowledge gained from outside through exploitative learning, expanding, or modifying the existing knowledge to adapt to local differences (Chen, Huang, & Lin, 2012). In addition, exposing themselves to highly

RI PT

innovative or new and complex dynamic environments, enterprises explore new knowledge and augment their knowledge base by monitoring technological opportunities abroad and acquiring

foreign technical knowledge (Lehrer & Asakawa, 2002). The higher R&D internationalization is, the larger potential knowledge spillovers that a firm can have access to.

SC

R&D activities have economies of scale, but with increasing R&D internationalization

enterprises may not be able to obtain such economies (Argyres & Silverman, 2004). For example, the overseas R&D subsidiaries are not only in the institutional environment of the host country,

M AN U

but also in the institutional environment of the headquarters. The institutional pressure caused by the conflict of institutional duality has brought many difficulties and challenges to R&D internationalization (Hillman & William, 2005). While acquiring knowledge resources, foreign R&D activities also create additional costs that may weaken international performance. The autonomy-control perspective and the information-processing perspective can be used to explain the costs related to R&D internationalization (Asakawa, 2001). The autonomy-control perspective

TE D

focuses on the coordination costs between headquarters and overseas R&D units due to the requests of overseas R&D units for a higher degree of autonomy, and the information-processing perspective is concerned with the communication costs resulting from the decentralization of overseas R&D institutions.

EP

2.3. Breadth of R&D internationalization and international performance According to knowledge-based theory, the broader the geographical distribution of

AC C

international R&D cooperation, the higher the degree of accessible knowledge heterogeneity is. The more heterogeneous such knowledge is, the higher the probability of knowledge integration and reverse innovation becomes (Martin & Salomon, 2003). Countries vary in terms of institutional environments, living habits and standards of behavior. Specifically, as market demands vary across regions (Ahuja, 2004), unique knowledge systems and product characteristics are created in each region (Almeida & Kogut, 1999). Engaging in cross-border R&D activities and integrating the knowledge networks of multiple regions enable enterprises to design and develop products based on local markets (Serapio & Dalton, 1999; Shimizutani & Todo, 2008). Eventually, localized product development is used to occupy the international market and to enhance the global market shares of enterprises. 5

ACCEPTED MANUSCRIPT With the acquisition of a wealth of market knowledge and technical expertise, the regional decentralization of R&D activities can cause information overload, leading to a significant increase in the cost of information processing (Fisch, 2003) and eventually resulting in a decrease in utilization efficiency of external knowledge resource. As the breadth of firm R&D internationalization expands, organizational structures are changed by headquarters while overseas

RI PT

branches adhere to a multi-centric and multi-institutional network coordination system (Asakawa, 2001). The expansion of institutions and the complication of functions lead to difficulties related

to supervision and coordination. Moreover, when the knowledge base of one overseas institution is used to address a problem faced by another institution, problems will always be faced in

SC

transferring knowledge between agencies (e.g., time consumption and communication barriers)

(Lahiri, 2010). Such problems are amplified with an increase in geographical distance. Moreover, with the decentralization of overseas R&D activities, information sharing and communication

M AN U

among a company's internal R&D institutions becomes more frequent. To fully acquire knowledge, a receiving department must not only have a similar technical background but must also maintain similar communication channels and information transfer processes as part of its delivery department. In addition, trade and institutional barriers and varying customer needs resulting from regional differences entrench communication and coordination difficulties faced by an enterprise. Therefore, different benefits and costs are observed at different stages of the global expansion

TE D

of an enterprise's R&D activities, leading to different effects of R&D internationalization breadth on international performance. In early stages of the geographic expansion of R&D activities, EM MNEs often choose to enter a host country at a closer psychological distance to the home country (Geringer & Beamish, 1989). Enterprises are familiar with the needs of the host country's

EP

customers, and they can thus make better use of local technical and market resources. International performance is enhanced with increasing R&D internationalization breadth. However, with the

AC C

decentralization of an enterprise's R&D activities, the complexities of organizational structure are enhanced. Such enterprises must integrate a large number of resources acquired from overseas R&D institutions, creating coordination and communication problems related to excessive information processing requirements, management difficulties and the inefficient allocation of resources. This causes international performance to decline beyond a certain critical point. There is thus an inverted U-shaped relationship that first increases and then decreases between the breadth of R&D internationalization and the international performance of EM MNEs. H1. There is an inverted U-shaped relationship between the breadth of R&D internationalization and the international performance of EM MNEs. 2.4. Depth of R&D internationalization and international performance 6

ACCEPTED MANUSCRIPT The “differentiated utilization model”, which states that EM MNEs develop overseas markets through the use of existing technical resources, requires that enterprises build a local platform for innovation on demand (Makino, Lau, & Yeh, 2002). By seizing opportunities to monitor overseas technologies to obtain overseas technical expertise, enterprises combine knowledge acquired from the overseas markets with domestic technical resources and respond to

RI PT

any changes in market demands of the host country while enhancing the adaptability of enterprises. The host country's intellectual resources are often hidden by local universities, R&D institutions,

suppliers and other complex social structures that have been affected by local cultural customs and by different preferences. Only when enterprises deeply embed R&D institutions within the local

SC

network of relationships can they effectively absorb and utilize tacit knowledge to develop and

regulate product functions according to local customer demand and value preferences (Phene & Almeida, 2008; Feinberg & Gupta, 2004). Therefore, an increase in the depth of R&D

M AN U

internationalization helps enterprises promote product quality and high-end functions, continuously expand the business scope and overseas markets and by selling differentiated products.

An increase in investment in overseas R&D resources may also leave an emerging market enterprise exposed to more "liabilities of foreignness." In undergoing innovation companies face considerable external environmental uncertainty, which creates problems (e.g., a lack of shared

TE D

value (Bechky, 2003), an increase in coordination costs (Mors, 2010), and difficulties related to intellectual property protection (Tortoriello & Krackhardt, 2010). First, with an increase in investment in R&D resources in a given country, an R&D subsidiary can become bound to the local market of the host country and strive to obtain a higher level of management autonomy at the

EP

expense of corporate cohesion. This leads to a significant increase in risks of headquarter exposure to subsidiary opportunism, and enterprises must in turn increase costs of coordination with

AC C

overseas R&D institutions (Asakawa, 2001). Second, as foreign investors, overseas R&D subsidiaries are often unable to effectively use a host country's rules and regulations to protect their intellectual property rights. Enterprises engaging in in-depth R&D activities in an overseas market are likely to face knowledge leakage risks during innovation (Sanna-Randaccio & Veugelers, 2007). Finally, overseas R&D institutions face enormous competitive pressures and even excessive investment in R&D resources abroad can be subjected to local government and customer discrimination against goods from enterprises operating in transitional economies. Therefore, a depth of overseas R&D internationalization not only secures benefits brought about by organizational learning but also accompanies additional costs associated with external environmental uncertainties and risks. Varying depths of R&D internationalization can produce 7

ACCEPTED MANUSCRIPT different benefits/costs and can have various effects on the international performance of enterprises. An appropriate increase in investment in overseas R&D resources can stimulate the reverse innovation of EM MNEs and can improve the global competitiveness of companies. However, once the depth of an enterprise's level of R&D internationalization passes a certain critical point, with an increase in risks and coordination costs, costs can exceed benefits. Therefore,

RI PT

there is an inverted U-shaped relationship that first increases and then decreases between the depth of R&D internationalization and the international performance of enterprises.

H2. There is an inverted U-shaped relationship between the depth of R&D internationalization and the international performance of EM MNEs. 2.5. Moderating effect of product diversification

SC

With increasing product diversification, the technological diversity of individual business

unit declines, and the heterogeneity of technical resources between business units deteriorates the

M AN U

use of geographically-decentralized R&D resources. Product diversifiers are more likely than non-diversifiers to encounter difficulties with geographically decentralized R&D activities. For example, when enterprises wish to find local applications for new knowledge, each R&D unit of every location must understand the entire range of diverse technological expertise held by subsidiaries of the home country. Consequently, with an increase in the breadth of R&D internationalization, enterprises’ costs in duplicating every element of their diverse resources at all

TE D

locations within a high diversifier will rise at a faster rate (Lahiri, 2010). Furthermore, the path dependence and inertia of the innovation environment of the home country weaken the use of diversified overseas technologies for product-diversified EM MNEs. The international expansion of latecomers in the emerging market is derived from a successful

EP

adaptation to domestic technologies and market environments to a large extent (Mu & Lee, 2005; Williamson, 2010) and often follows the stronger home country’s customer/market orientation

AC C

(Keister, 2002; Leskovar-Spacapan & Bastic, 2007). The path dependence of the home country causes enterprises to depend on technological capabilities and innovative methods established in the home country (Govindarajan & Ramamurti, 2011). When using the technical resources obtained abroad, firms give priority to market and technology conditions of the countries of origin. Due to the home country’s more complex dependence on capabilities of a product-diversifier, knowledge transfer efficiency declines within a given company. Therefore, product diversification further exacerbates uncertainty and raises coordination costs of enterprise production and operation. These findings indicate that with increasing levels of product diversification, benefits generated from R&D geographic distribution are dampened and challenges that this poses are exacerbated. 8

ACCEPTED MANUSCRIPT As the impact of the breadth of R&D internationalization on international performance is proposed to follow an inverted U-shape, we analyze the moderating effect in relation to two different situations: before and after the breadth of D&D internationalization reaches the inflection point. For the former case, product diversification dampens positive impacts of breadth on international performance for EM MNEs. Before the inflection point is reached, the higher the

RI PT

levels of product diversity within an enterprise, the weaker the positive effect of R&D internationalization breadth on international performance becomes. With an increase in product

diversity, the inflection point is reached early and the apex of the curvilinear relationship between the breadth of R&D internationalization and international performance shifts to the lower left.

SC

Similarly, once the inflection point is reached, as challenges are exacerbated, the higher the degree of product diversity, the stronger the negative effect of breadth on international performance. H3. For EM MNEs, product diversification moderates the effect of the breadth of R&D

M AN U

internationalization on international performance. The greater a firm’s product diversity, the less positive (and more negative) the impact of breadth on international performance becomes. Highly diversified firms are presented with more opportunities than non-diversifiers to connect incoming external knowledge with existing knowledge, creating a solid foundation to boost international competitiveness. Product-diversified firms are typically presented with enormous demands for all kinds of professional resources and information owned by suppliers,

TE D

customers and even competitors. With an increase in R&D internationalization depth, firms are more likely to interact with suppliers, customers and collaborators and to be familiar with the environment, systems and culture of the host country. Deep involvement in foreign markets helps firms acquire heterogeneous knowledge and experience and enhance cognitive development.

EP

However, as enterprises with a single product line cannot fully integrate heterogeneous technical resources, enterprises' organizational resources are more likely to become redundant and idle. By

AC C

contrast, higher levels of product diversification within an enterprise create more opportunities for foreign heterogeneous knowledge to relate to companies’ existing domains (Cohen & Levinthal, 1990).

Furthermore, product-diversified enterprises accumulate more R&D experience through

development activities/events experienced in multiple product areas at an early stage, which can help enterprises to absorb and utilize heterogeneous external resources. Absorptive-capacity theory holds that the impact of R&D internationalization on performance is dependent on whether an enterprise's conditions help absorb external heterogeneous knowledge. For EM MNEs, knowledge seeking and utilizing behaviors of international expansion must be supported by technological/innovation capabilities and especially product experience/abilities developed within 9

ACCEPTED MANUSCRIPT the home market (Cohen & Levinthal, 1990; Luo & Peng, 1999). The accumulation of R&D experiences involves improving enterprises' learning capabilities (Danneels, 2002; Zollo & Reuer, 2010), which can enhance capacities for the acquisition and integration of knowledge for the development of follow-up products (Eggers, 2012; Verona & Ravasi, 2003). Regarding overseas R&D activities driven by markets, diversified experiences of product development facilitate the

RI PT

transferring and leveraging of technology, help enterprises successfully enter foreign markets and achieve a competitive advantage, and facilitate greater returns for innovation by effectively combining local market demand with complementary assets.

On the basis of the above discussion, we propose that boosting product diversification will

SC

enhance the positive impact of depth on international performance before R&D

internationalization depth reaches the inflection point. Rather, the higher the level of product diversity within an enterprise, the stronger the positive effect of R&D internationalization depth

M AN U

on international performance. Similarly, once the inflection point is reached, as a result of stronger absorptive capacities, increasing levels of product diversification will mitigate the negative impact of depth on international performance. The higher levels of product diversity, the weaker the negative effect of depth on international performance.

H4. For emerging market enterprises, product diversification moderates the effect of the depth of R&D internationalization on international performance. The greater the product diversity

performance.

3. Study design

TE D

of a firm is, the more positive (and less negative) the impact of depth on international

EP

3.1. Study samples and data

To test these hypotheses, we collected our samples and secondary data from companies listed

AC C

under the communications and computer electronic equipment manufacturing category of the China A-share market. Such enterprises are characterized as high-tech and competitive, are more adept at adapting to technological change, and demonstrate a stronger willingness to enhance their competitiveness through engagement in overseas R&D activities. In addition, complete information on the A-share listed companies can be obtained from the companies' annual reports or official websites. We used the Cninf Information CCER Economic & Financial Research Database, which can be downloaded from the Cninf Network to obtain information on institutions engaged in R&D internationalization, enterprise characteristics and financial performance. The sampling procedure was executed as follows. We first selected an initial sample of enterprises according to the following requirements: ① removed ST, FT, delisted and negative 10

ACCEPTED MANUSCRIPT net asset enterprises; ② removed companies listed after 2010; ③ removed companies not engaged in R&D or only engaged in R&D on a limited bases; ④ removed companies offering incomplete or missing data in annual reports; ⑤ removed companies characterized by abnormal fluctuations in financial data for two consecutive years or for three years. We then selected enterprises significantly engaged in international business. We agree with the view that the

RI PT

selection of international enterprises must follow certain principles (Qian et al., 2010). Given our focus on Chinese enterprises, we selected enterprises with the FSTS scores of greater than 10%

and the R&D institutions abroad while taking 2014 as the base year. Finally, we selected 70 listed companies as our final sample and collected data for all of these companies. Our investigation

SC

covers 2010-2014 (inclusive). Thus, the sample size includes 350 observations. 3.2. Variable measurement 3.2.1. International performance

M AN U

Many scholars are inclined to believe that internalization is a multidimensional construct and have thus measured levels of enterprise participation in international operations by constructing multiple indexes. For example, Sullivan (1994) proposed the three attributes of performance, structures and attitudes for the measurement of the degree of internationalization (DOI) where a performance attribute denotes an enterprise’s performance in foreign markets where its main measurement index is foreign sales as a percentage of total sales (FSTS) (Geringer & Beamish,

TE D

1989; Capar & Kotabe, 2003; Contractor, Kundu, & Hsu, 2003). 3.2.2. R&D internationalization

Previous studies have measured R&D internationalization breadth from geographical (Tallman, 1996) and psychological distance (Johanson & Vahlne, 1977). Geographical distance

EP

has been measured from the number of countries related to R&D internationalization, and psychological distance has been calculated using a four-dimensional model (Hansen & Lovas,

AC C

2004). We measured the breadth of R&D internationalization using geographical and psychological distance simultaneously and found considerable levels of consistency between them. As our hypothesis focused on the geographical distance, finally we only studied geographical distance.

R&D internationalization depth represents foreign inputs of enterprise R&D resources,

which can be measured from three dimensions: foreign R&D expenditure, foreign R&D organization and foreign R&D personnel input. Due to restriction placed on data that can be obtained from public companies, we used foreign R&D organization input to measure enterprise foreign R&D depth and we used foreign R&D subsidiaries as a percentage of all R&D subsidiaries as our index following Hsu, Lien, and Chen (2015). 11

ACCEPTED MANUSCRIPT 3.3.3. product diversification We took the first two SIC codes for the manufacturing industry as a standard based on Classification and Code Standards of the National Economic Industry, and we used the adjusted Herfindahl index (AH) to measure product the diversification of the examined enterprises (Bodnar, Tang, & Weintrop, 1999) using the following formula: N

pi ∑ i

2

RI PT

AH = 1 -

=1

N is the number of industries related to a main business, which is determined from the

number of products produced based on the first two digits of an SIC code; Pi is the proportion of

SC

main business income from the ith industry. Control variable

We controlled variables that may have a significant impact on enterprises’ international

M AN U

performance to avoid a deviation of research conclusions. Enterprise size is a basic indicator used to reflect an enterprise’s comprehensive strength. Large enterprises have access to more resources and maintain superior conventional and operations processes in support of international activities (Roberto & Michela, 2012; Adu-Gyamfi & Korneliussen, 2013) and acquire economies of scale and cost advantages to effectively resist risks brought about by the “liability of foreignness” (Bonaccorsi, 1992). Enterprise age may affect its attitudes toward international commercial

TE D

activities and may further affect its international performance. Compared to younger enterprises, enterprises established earlier enjoy brand advantages and a relatively stable customer base as well as a strong domestic market base. Enterprises may not be a proactive when engaging in foreign commercial activities, their foreign strategies are relatively conservative (Zahra, 2005), which may

EP

have adverse effects on international performance. R&D ability is developed by absorbing valuable external knowledge while effectively integrating this information into one’s own

AC C

resources and it is closely linked to absorption levels of the corresponding period. R&D capacity plays an important role in the integration of knowledge through an enterprise’s international expansion (Kotabe, Srinivasan, & Aulakh, 2002; Frost & Zhou, 2005). The effect of the international experiences of top management teams (TMT) in terms of operating rules and trends of the international market afford an enterprise a stronger risk appetite and cause an enterprise to view internationalization expansion as an important means for obtaining sustainable growth of value (Carpenter, Pollock, & Leary, 2003). Meanwhile, international experience can help enterprises to evaluate market opportunities, avoid potential risks and acquire knowledge to effectively participate in international competition (Athanassiou & Nigh, 2002). The gross domestic product (GDP) of a province in which an enterprise operates represents the local 12

ACCEPTED MANUSCRIPT economic development level and objectively reflects local resource richness and market normalization. More resources and advanced markets are available in regions of a higher GDP, where enterprises are more motivated and able to initiate internationalization (Freeman & Styles, 2014). Table 1

M AN U

SC

RI PT

Data variables, measurements and definitions

3.3. Model design

To effectively test our assumptions, we established a regression equation and adopted the

TE D

least square method to conduct a multiple linear regression. The model used was constructed as follows:

 
, =  +  × , +  × , +  × , +  × , × , +  × , × , + × _, +

,

i represents the number of firms taken from our sample, and t refers to the year investigated.

EP

FSTSi,t is the international performance of company i in year t, RDIi,t is the level of firm i’s R&D internationalization in year t, and PDi,t is the level of product diversification for company i in year t. Control_Variablei,t denotes the scope, age, innovation capacities, and international experiences

AC C

of company i in year t and GDP where the company operates, and ε i,t denotes the random interference items of the model. We employed panel data analysis method perform regression testing. We ran a Hausman test

to examine whether a fixed-effects or a random-effects model was more appropriate, and the results showed that the P value rejects the original hypothesis, and that the fixed effect model should be chosen. The unit root test of variables shows that the P values of all variables are less than 0.05, indicating that the data in this paper are stationary, and the regression equation can be established directly.

13

ACCEPTED MANUSCRIPT 4. Empirical results 4.1. Hypothesis testing Table 2 Mean, Standard Deviation and Correlation Coefficient Matrix Mean

SD

1

2

1 Breadth

1.24

1.32

1

2 Depth

0.24

0.22

0.528*

1

3 Product diversification

0.43

0.60

0.016

-0.013*

1

*

-0.160

0.013

1

-.069

0.017

0.289* *

4 Enterprise size

7.78

1.20

0.287

5 Enterprise age

13.28

5.33

0.074

3

4

5

1

6

7

8

RI PT

Variables

0.00

0.93

0.024

-0.035

0.038

0.133

0.036

1

7 GDP

3.70

1.86

0.258*

0.243*

-0.100

0.053

0.321*

0.023

1

0.22

0.244

*

0.366

*

0.262*

-0.014

-0.030

-0.162

0.133*

1

0.328

*

0.618

*

0.010

-0.057

0.056

-0.043

0.230*

0.482*

8 International experience

0.20

9 International performance *

0.25

.26

SC

6 R&D ability

P<0.05

M AN U

Table 3 Regression Analysis Results for International Performance Variables

Model 1 ***

0.282 (4.34) * -0.014

Intercept Enterprise size

Product diversification

Depth

***

0.320

***

（-0.17） * 0.006

（-0.11） * 0.007

（-0.18） * 0.006

（0.01） * 0.008

（1.56） 0.008

（1.72） 0.003

（1.47） 0.009

（1.97） -0.001

（0.42） 0.152

（0.53） * 0.109

（0.20） * 0.121

（0.55） * 0.096

（-0.02） * 0.132

（1.72）

（1.17）

（1.30）

（1.01） 0.003

（1.42） 0.068

（0.06） ** 0.030

（1.26）

**

（2.01） ** -0.004

（2.11） * -0.007

（-2.05） 0.172

**

（-1.74） 0.199

（1.75） * -0.152

**

（1.90） -0.013

（-1.15）

*

（-0.08）

-0.006

Product diversification × breadth

（-0.71） ** 0.006 (0.89)

2

0.042

Product diversification × depth

（0.49） * -0.560 (-1.83)

Product diversification × depth2 Adjusted R-square

Model 5

（-1.39） 0.001

2

Product diversification × breadth

0.318

（-1.64） 0.0001

AC C Depth

Model 4

（-1.16） -0.001

EP

Breadth2

***

（-1.66） 0.001

0.027

Breadth

0.305

（4.31） ** -0.015

TE D

International experience

Model 3

（4.56） * -0.017

（1.54） 0.007

Local economic development level

***

（4.13） * -0.013

（0.08） * 0.006

R&D ability

0.312

（4.52） * -0.017

（-1.33） 0.001

Enterprise age

Model 2

0.344

0.334

0.454

0.286

0.469

F

42.80

***

39.40

***

24.62

***

34.31

***

35.60

***

Hausman test

35.34

***

42.31

***

37.62

***

45.38

***

38.21

***

* p < 0.1;

** p < 0.05;

*** p < 0.01

Table 2 shows mean, standard deviation and correlation coefficients for all of the variables 14

ACCEPTED MANUSCRIPT examined. Most relevant coefficients measured between the variables are less than 0.6, showing that potential multicollinearity effects are minor. We present our panel-data analysis results of our regression model in Table 3, in which the fixed effect model is applied to process data according to a Hausman test. All of equations were well specified with significant F values (all at p < 0.01), and adjusted R-square values were close to or greater than 30%.

RI PT

Table 3 shows test results for all of the hypotheses. Model 1 only tests the impact of the control variables on international enterprise performance. Models 2 and 3 respectively introduce the breadth of R&D internationalization together with its quadratic term (hypothesis 1) and the

depth of R&D internationalization together with its quadratic term (hypothesis 2). Model 4 adds

SC

interactions between product diversification and breadth on the basis of Model 2 (hypothesis 3). Model 5 adds interactions between product diversification and depth on the basis of Model 3 (hypothesis 4).

M AN U

The results of model 2 show that the squared term for R&D internationalization breadth has a significantly negative impact on international performance (  = −0.004, p < 0.05) while R&D internationalization breadth has a significantly positive impact on international performance (  = 0.027, p < 0.05). This reveals an inverted U-shape relationship between the breadth of R&D internationalization and international performance, and thus Hypothesis 1 is supported. Similarly, the regression results of Model 3 show that effects of depth squared on FSTS are

TE D

significantly negative (  = −0.152, p < 0.1) and that the effect of depth is significantly positive (  = 0.172, p < 0.05), revealing a U-shaped relationship between the depth of R&D internationalization and international performance, supporting Hypothesis 2. Model 4 tests moderating effects of product diversification on the relationship between the

EP

breadth of R&D internationalization and international performance. The statistically significant negative effect of the interaction between product diversification and breadth on FSTS (  =

AC C

−0.006, p < 0.1) and the positive effect of the interaction between product diversification and breadth squared on FSTS (  = 0.006, p < 0.05) support Hypothesis 3. For lower and higher levels of product diversification, values of R&D internationalization breadth corresponding to the inflection point are valued at 3.14 and 5.42, respectively, as shown in Figure 1. As the graphical representation shows, when the R&D internationalization breadth of a firm with lower level of product diversification is 5.42, its international performance (0.7) is maximized. Similarly, a firm presenting higher levels of product diversification and a breadth level of 3.14 will perform optimally (0.3). Before the inflection point is reached, the higher the level of product diversity within an enterprise, the flatter the positive effect of R&D internationalization breadth on international performance is. However, once the inflection point is reached, the higher the level of 15

ACCEPTED MANUSCRIPT

SC

RI PT

product diversity, the steeper the negative effect of breadth on international performance.

M AN U

Fig. 1. Moderating Effect of Product Diversification on the Relationship between R&D Internationalization Breadth and International Performance

Model 5 examines moderating effects of product diversification on the relationship between the depth of R&D international and internationalization performance. The regression results show that the interaction between product diversification and depth squared has a significantly negative impact on FSTS (  = −0.560, p < 0.1) while the effect of the interaction between product

TE D

diversification and depth on FSTS is positive but not significant (  = 0.042, ns). This only shows that the extent of product diversification may moderate the effect of R&D internationalization depth on internationalization performance without showing how it changes the relationship between R&D internationalization depth and international performance. Therefore,

EP

Hypothesis 4 is rejected. Clearly, additional research must be conducted on this issue. 4.2. Robustness testing

AC C

To ensure the robustness of the research results, we conducted a robustness test to examine the reliability of our conclusions from two angles. The significance of our robustness test results shown in Table 4 is slightly lower than that of the empirical results shown in Table 3 (the impact of control variables has been removed to conserve space), but it still remains at a level of 10%. We first lagged all control variables and independent variables behind FSTS for one year, as

R&D internationalization is a complex long-term project that can take a long time to affect enterprise performance. The regression results show that the main and moderating effects of the one-year lag given in Table 4 are consistent with the master model for variables shown in Table 3. According to Figures 2a and 2b, when an enterprise’s breadth/depth of R&D internationalization remains constant, international performance for a one-year lag is lower than for the current period. 16

ACCEPTED MANUSCRIPT Rather, R&D internationalization has a lagged effect of one year on international performance, and this effect is less significant than current period’s effect. The results of the robustness test based on a one-year lag verify robustness of the master model. Table 4 Robustness Test Results Based on a one-year lag

Based on a subsample of non-state-owned enterprises

Variables PD 0.032

Breadth

**

（2.50） ** -0.005

2

Depth2

-0.007

（-0.70） ** 0.035

（-0.16）

（-1.31）

*

0.194

（0.81） -0.068*

（0.82） 0.041

（1.94） * -0.129

（-0.57）

（0.28）

*

0.166

（0.45） ** 0.055

（0.29）

（-1.71）

0.164

（1.16） * 0.316

*

（-1.51） * 0.016 （1.36）

0.047

0.291

（0.60） -0.359*

（0.99） ** -1.421 （-2.28）

（-1.29）

42.43

***

66.12

***

30.23

***

34.31

***

82.04

***

57.65

***

** p < 0.05;

*** p < 0.01

（1.27）

-0.061

（-0.68） * 0.006

PD ×Depth 2

Model 5

0.274

（-0.99）

-0.006

（0.92）

Model 4

（2.46） * -0.010

0.079

PD ×Depth

* p < 0.1;

（2.06） * -0.004

（-2.05）

PD ×breadth2

Hausman test

**

Model 3

0.072*

PD ×breadth

F

Model 2

0.029

（2.58） ** -0.008

（-2.61）

Depth RDI

Model 5

-0.032

M AN U

Breadth

Model 4

RI PT

Model 3

SC

Model 2

33.6

***

34.63

***

36.88

***

44.69

***

23.04

***

***

31.33

37.67

***

907.10

***

35.22

***

94.04

***

TE D

Second, we conducted a robustness test based on our subsample of non-state-owned enterprises. Emerging market governments grasp and control keystone resources. When EM MNEs engage in overseas activities, political connections bring firms many benefits such as

EP

resource support, preferential policies and legitimacy enhancement, which are conductive to improving their international competitiveness. The political connections enjoyed by Chinese enterprises are mainly derived from through state-ownership. To remove the effect of political

AC C

connections on R&D internationalization and international performance, we selected non-state-owned enterprises as a research sample and conducted a regression analysis. The regression analysis results show that our conclusions remain stable as shown in Table 4. According to Figure 2b, the international performance of non-state-owned enterprises reached an optimal level early on and later dropped at a faster rate as the depth of R&D internationalization increased. Thus, the decision for a non-state owned enterprise to establish an overseas R&D institution is driven by the market rather than by government policy and is characterized by a sense of adventure, and thus enterprises obtain higher returns on investment when they begin to enter the international market. However, compared to state-owned enterprises, non-state-owned enterprises enjoy level absorptive capacity, which impedes the absorption and utilization of advanced foreign 17

ACCEPTED MANUSCRIPT knowledge with increasing R&D internationalization depth. With an increase in R&D internationalization depth, the international performance of non-state-owned enterprises drops at a faster rate than it does for state-owned enterprises’.

1

2

3

master model

4

one year lag

5

6

SC

0

RI PT

0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

7

8

non-state owned enterprises

M AN U

Fig. 2a. Inverted U-shaped relationship between R&D internationalization breadth and international performance

0.5 0.4

0.2 0.1 0 0

TE D

0.3

0.5

EP

master model

1

1.5

one year lag

2

2.5

3

non-state owned enterprises

Fig. 2b. Inverted U-shaped relationship between R&D internationalization depth and international

AC C

performance

5 Discussion and Conclusions To determine whether the breadth and depth of R&D internationalization is conducive to the

foreign market expansion of EM MNEs, we conducted a statistical analysis based on panel data for Chinese companies. The results reveal an inverted U-shape relationship between R&D internationalization and international performance that is initially positive and that eventually becomes negative. When the depth and breadth of R&D internationalization are within a certain range, the benefits brought about by organizational learning and overseas resource allocation are greater than related costs, and the international performance of an enterprise improves. With ongoing R&D internationalization, enterprises reach higher levels of “foreignness liability.” After 18

ACCEPTED MANUSCRIPT reaching a certain critical point, external environmental uncertainty and risk begin to obstruct the development and success of overseas markets, the costs of R&D internationalization eventually outweigh the benefits, causing international enterprise performance to decline. We used product diversification as a contextual variable and introduced it into the relationship between R&D internationalization and performance. The results show that the

RI PT

relationship between R&D internationalization and international performance is even more complex and that the impact of R&D internationalization breadth on internationalization

performance varies with the extent of product versification. Due to the home country’s more complex dependence on capabilities, the use of geographically decentralized technologies is

SC

weakened for product-diversified EM MNEs. The higher the product diversity of a firm, the less positive (and more negative) the impact of breadth on international performance becomes. However, the moderating effect of product diversification on the relationship between R&D

M AN U

internationalization depth and internationalization performance is not supported by empirical evidence. This finding is likely attributable to the fact that there are other effects of product diversification on the relationship between R&D internationalization depth and international performance aside from absorptive capacity. 5.1. Theoretical significance

First, this paper presents a theoretical framework to explain whether the R&D

TE D

internationalization of EM MNEs affects international performance in relation to depth and breadth. Most previous studies have analyzed the impact on innovation performance in relation to the geographic decentralization of EM MNEs’ R&D activity. However, an increasingly obvious motive of their R&D internationalization is to access local markets and customers. In particular,

EP

the relationship between R&D internationalization and international performance of enterprises in emerging markets may be entirely different from that in developed countries. Our research results

AC C

based on firm-level data of China further our understanding of the importance of R&D internationalization in the context of an emerging market economy. The present study shows that both overseas investment and the geographic distribution of enterprise R&D resources are important factors that shape international performance. Second, based on benefits and costs associated with foreign R&D activities this paper

explores how R&D internationalization affects the foreign market expansion of EM MNEs. Our results show that R&D internationalization creates both benefits and costs, which interact and jointly determine an enterprise’ international performance at different stages. When initiating overseas R&D activities, enterprises can improve upon their reverse innovation capacities by absorbing advanced technological and market knowledge to acquire foreign markets. However, 19

ACCEPTED MANUSCRIPT once R&D internationalization reaches a certain point, with a further increase in uncertainty and risks from external environments, the costs related to coordination and communication increase and the contributions of R&D internationalization to international performance decline. Such a conclusion diverges from the U-shaped curvilinear relationship found between R&D internationalization and innovation performance by Hsu, Lien, and Chen (2015) based on panel

RI PT

data for Taiwan’s high-tech enterprises. This may be attributed to the fact that their study focuses on innovation performance while we focus here on FSTS. In addition, relative to Taiwan’s

high-tech enterprises, the absorption capacities of China’s high-tech enterprises are limited. With ongoing internationalization progress, these enterprises fail to fully absorb and transfer foreign

enterprise growth and success in foreign markets.

SC

advanced technologies and knowledge and to apply these to enterprise operations, compromising

Finally, this paper reveals a moderating effect of product diversification on the relationship

M AN U

between R&D internationalization breadth and international performance. Prior studies posit that product diversification plays a role in absorbing ability because diversified product experiences/abilities at home enhance foreign knowledge acquisition (Kotabe, Jiang, & Murray, 2011). Such studies argue that this may positively moderate the relationship between international expansion and performance while ignoring the adverse effects of product diversification resulting from path dependence. The present study shows that depending on technological capabilities and

TE D

innovative methods established in the home countries of EM MNEs, product diversifiers are more likely than non-diversifiers to encounter difficulties with geographically decentralized R&D activities. This finding also explains why the promotion of internationalization performance of enterprises with higher levels of product diversification may lag behind that of firms with product

activity.

EP

specialization when engaging in foreign market expansion via the decentralization of R&D

AC C

5.2. Management significance

R&D internationalization of Chinese enterprises in communication and computer equipment

manufacturing industry grew out of nothing, and today some of them such as Huawei, ZTE, and Lenovo have achieved great success in the international market. The empirical conclusion of the relationship between R&D internationalization and international performance on these enterprises can serve as a useful and meaningful reference for the international market development of EM MNEs. First, the managers of EM MNEs can achieve superior international performance by managing the breadth and depth of R&D internationalization such that their firms operate at or close to the threshold. There is an inverted U-shaped relationship between R&D 20

ACCEPTED MANUSCRIPT internationalization and international performance. Enterprises exhibiting very low levels of R&D internationalization can likely achieve considerable overseas market growth by improving the breadth and depth of their overseas R&D activities. However, the expansion of foreign markets may be restrained when continually improving the breadth or depth of enterprises presenting very high levels of R&D internationalization. When such firms wish to further expand to foreign

RI PT

markets, they may need to re-channel resources away from R&D internationalization to self-innovation or to providing customers with value. Therefore, managers should carefully and rationally use foreign R&D strategies to pursue overseas markets, and it is important that they

conduct econometric analyses to identify ideal levels of R&D internationalization breadth and

SC

depth that optimize international performance.

Second, the management of firms to achieve optimal levels of R&D internationalization is not a one-off job, and the managers of EM MNEs may adjust the breadth of R&D

M AN U

internationalization based on changes in product diversification strategies to maximize international performance. When enterprises previously operated at or close to an optimal level of R&D internationalization breadth are transitioning from lower to higher levels of product diversification, the manager’s task is to decrease limit firm R&D internationalization breadth to maintain optimal positioning. Otherwise, international performance will decline. By contrast, in enterprises with higher levels of product diversification operating at or close to optimal levels of

TE D

R&D internationalization breadth, reducing product diversification levels can improve internationalization performance. At the same time, managers must enhance firm R&D internationalization breadth to ensure a firm’s optimal positioning. Otherwise, international performance will decline.

EP

Limitations and avenues for future research This paper presents several limitations that require attention in future studies. First, the

AC C

international performance measurement index used in this article only considers a single indicator. Due to data accessibility issues, we only used the most widely used indicator of FSTS in measuring international performance. However, an enterprise’s international performance is a comprehensive index, and a single measurement index cannot cover all aspects of internalization performance (Annavarjula & Beldona, 2000; Ramaswamy, Kroeck & Renforth, 1996). In addition to reflecting enterprise objective financial indexes of operation performance in foreign markets, subjective non-financial indexes used to measure corporate strategy implementation such as success perceptions, levels of satisfaction and target achievement outcomes should be considered in evaluation indexes of international performance (Geringer & Hebert, 1991). Future studies may consider adopting a comprehensive index that covers objective and subjective indexes to measure 21

ACCEPTED MANUSCRIPT international performance to avoid generating distorted study results. In addition, the dataset used is relatively small and lacks comparisons among different industries. As Chinese enterprises were late to begin engaging in R&D internationalization and as their levels of R&D internationalization are generally not high, we only used a panel dataset for 70 listed companies of China's A-share market covering 5 years to test our framework. The sample

RI PT

used does not accurately reflect changes in enterprise development occurring over a longer period. In addition, our examination of only one industry prevented us from drawing horizontal

comparisons between industries, and whether our research conclusions are applicable to other

industries requires further validation. In future studies, we will consider broadening our sample

SC

size, study period and industry focus. References

Adu-Gyamfi, N., & Korneliussen, T. (2013). Antecedents of export performance: the case of an emerging market. International Journal of Emerging Markets, 8, 354-372. Management, 25, 887-907.

M AN U

Ahuja, G., & Katila, R. (2004). Where do resources come from? The role of idiosyncratic situations. Strategic Aldieri, L., Sena, V., & Vinci, C. P. (2018). Domestic R&D Spillovers and Absorptive Capacity: Some Evidence for US, Europe and Japan. International Journal of Production Economics, 198, 38-49. Almeida, P., & Kogut, B. (1999). Localization of knowledge and the mobility of engineers in regional networks. Management Science, 45, 905-917.

Annavarjula, M., & Beldona, S. (2000). Multinationality-performance relationship: A review and

TE D

reconceptualization. International Journal of Organizational Analysis, 8, 48-67.

Argyres, N., & Silverman, B. (2004). R&D, organization structure, and the development of corporate technological knowledge. Strategic Management Journal, 25, 929–958.

Asakawa, K. (2001). Organizational tension in international R&D management: the case of Japanese firms. Research Policy, 30, 735-757.

Athanassiou, N., & Nigh, D. (2002). The impact of the top management team’s international business experience

EP

on the firm’s internationalization: social networks at work. Management International Review, 42,157-181. Audia, P. G., Sorenson, O., & Hage, J. (2001). Tradeoffs in the organization of production: multiunit firms, geographic dispersion and organizational learning. Multiunit Organization and Multimarket Strategy, 18,75-105.

AC C

Audretsch, D. B., & Feldman, M. P. (1996). R&D spillovers and the geography of innovation and production. American Economic Review, 86,630-640. Awate, S., Larsen, M. M., & Mudambi, R. (2015).Accessing vs sourcing knowledge: A comparative study of R&D internationalization between emerging and advanced economy firms. Journal of International Business Studies,46,63-86.

Bechky, B. A. (2003). Sharing meaning across occupational communities: The transformation of understanding on a production floor. Organization Science, 14,312-330. Bodnar, G.M., Tang, C. & Weintrop, J. (1999). Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification. Working paper, NBER. Bonaccorsi, A. (1992). On the relationship between firm size and export intensity. Journal of International Business Studies, 23,605-635. Cantwell, J., & Mudambi, R. (2005). MNE competence-creating subsidiary mandates. Strategic Management Journal, 26,1109–1128. 22

ACCEPTED MANUSCRIPT Caniëls, M.C.J., & Verspagen, B. (2001). Barriers to Knowledge Spillovers and Regional Convergence in an Evolutionary Model. Journal of Evolutionary Economics, 11,307-329. Capar, N., & Kotabe, M. (2003). The relationship between international diversification and performance in service firms. Journal of International Business Studies, 34,345-355. Carpenter, M., Pollock, T., & Leary, M. (2003). Testing a model of reasoned risk-taking: governance, the experience of principals and agents, and global strategy in high technology IPO firms. Strategic Management Journal, 24,803-820.

RI PT

Chen, C.-J., Huang Y.-F., & Lin B.-W. (2012). How firms innovate through R&D internationalization? An S-curve hypothesis. Research Policy, 41, 1544-1554.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly, 35,128-152.

Contractor, F. J., Kundu, S. K., & Hsu, C. C. (2003). A three-stage theory of international expansion: The link between multinationality and performance in the service sector. Journal of International Business Studies, 34,5-18. internationalization model. Journal of World Business, 46, 426-437．

SC

Cuervo-Cazurra, A. (2011). Selecting the country in which to start internationalization: The non-sequential Danneels，E．(2002). The dynamics of product innovation and firm competences. Strategic Management Journal,

M AN U

23,1095-1121．

De Meyer, A., & Mizushima, A. (1989). Global R&D management. R&D Management, 19,135–146. Di Minin, A., Zhang, J., & Gammeltoft, P. (2012). Chinese foreign direct investment in R&D in Europe: A new model of R&D internationalization? European Management Journal, 30, 189–203.

Eggers, J. P. (2012) All experience is not created equal: Learning, adapting, and focusing in product portfolio management. Strategic Management Journal, 33,315-335.

Feinberg, S. E., & Gupta, A. K. (2004). Knowledge spillovers and the assignment of R&D responsibilities to foreign subsidiaries. Strategic Management Journal, 25, 823-845.

TE D

Fisch, J.H. (2003). Optimal dispersion of R&D activities in multinational corporations with a genetic algorithm. Research Policy, 32, 1381–1396.

Freeman, J., & Styles, C. (2014). Does location matter to export performance? International Marketing Review, 31,181-208.

EP

Frost, T. S., & Zhou, C. H. (2005). R&D co-practice and ‘reverse’ knowledge integration in multinational firms. Journal of International Business Studies, 36,676-687. Gammeltoft, P., Barnard, H., & Madhok, A. (2010). Emerging multinationals, emerging theory: Macro-and

AC C

micro-level perspectives. Journal of International Management, 16, 95-101. Gassmann, O., & von Zedtwitz, M. (1999). New concepts and trends in international R&D organization. Research Policy, 28, 231–250.

Geringer, J. M., & Beamish, W. P. (1989). Diversification Strategy and Internationalization: Implications for MNE Performance. Strategic Management Journal, 10, 109-119. Geringer, J. M., & Hebert, L. (1991). Measuring performance of international joint ventures. Journal of International Business Studies, 22, 249-263. Geringer, J. M., Tallman, S., & Olsen, D. M. (2000). Product and international diversification among Japanese multinational firms. Strategic Management Journal, 21, 51-80. Govindarajan, V., & Ramamurti, R. (2011). Reverse innovation，emerging markets, and global strategy. Global Strategy Journal, 1, 191-205. Håkanson, L., & Nobel, R. (1993). Determinants of foreign R&D in Swedish multinationals. Research Policy, 22,397-411. 23

ACCEPTED MANUSCRIPT Hansen, M., & Lovas, B. (2004). How do multinational companies leverage technological competencies? Moving from single to interdependent explanations. Strategic Management Journal, 25,801–822. Hillman, A. J., & William P. W. (2005). The Determinants of MNE Subsidiaries' Political Strategies: Evidence of Institutional Duality. Journal of International Business Studies, 36,322-340. Hitt, M. A, Hosskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40,767–798. Hitt, M.A., Bierman, L., & Uhlenbruck, K. (2006). The importance of resources in the internationalization of

RI PT

professional service firms: The good, the bad, and the ugly. Academy of Management Journal, 49, 1137-1157.

Holmqvist, M. (2004). Experiential learning processes of exploitation and exploration within and between organizations: an empirical study of product development. Organization science, 15, 70–81.

Hsu, C.W., Lien, Y.C., & Chen, H. (2015). R&D internationalization and innovation performance. International Business Review, 24 , 187–195.

SC

Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993) Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108,577-598.

Johanson, J., & Vahlne, J.vE. (1977). The internationalization process of the firm: A model of knowledge

M AN U

development and increasing foreign market commitments. Journal of International Business Studies, 8, 23–32. Keister, L. A. (2002) Adapting to radical change: Strategy and environment in piece—rate adoption during china’S transition. Organization Science, 13, 459-474．

Kotabe, M., Jiang, C. X., & Murray, J. Y. (2011). Managerial ties, knowledge acquisition, realized absorptive capacity and new product market performance of emerging multinational companies: A case of China. Journal of World Business, 46,166-176.

Kotabe, M., Srinivasan, S. S., & Aulakh, P. S. (2002). Multinationality and firm performance: The moderating role of R&D and marketing capabilities. Journal of International Business Studies, 33,79-97.

TE D

Kumar, M. V. S. (2009). The relationship between product and international diversification: the effects of short-run constraints and endogeneity. Strategic Management Journal, 30, 99-116. Lahiri, N. (2010). Geographic distribution of R&D activity: how does it affect innovation quality?

Academy of

Management Journal, 53,1194－1209.

Laurens, P., Bas, C. L., Schoen, A., Villard, L., & Larédo. P. (2015). The rate and motives of the

EP

internationalisation of large firm R&D (1994-2005): Towards a turning point? Research Policy, 44,765-776. Lee, K., & Lim, C. (2001). The Technological regimes, catch-up and leapfrogging: findings from the Korean industries. Research Policy, 30,459-483.

AC C

Lehrer, M., Asakawa, K. (2002). Offshore knowledge incubation: the third path for embedding R&D labs in foreign systems of innovation. Journal of World Business, 37, 297–306. Leskovar-Spacapan, G., & Bastic, M. (2007). Differences in organizations innovation capability in transition economy: Internal aspect of the organizations’ strategic orientation. Technovation,27,533—546. Luo, Y., & Peng, M. W. (1999). Learning to compete in a transition economy: Experience, environment, and performance. Journal of International Business Studies, 30,269-295. Luo, Y., Sun J., & Wang S. L. S. (2011). Emerging economy copycats: Capability, environment, and strategy. Academy of Management Perspectives, 25, 37-56. Luo，Y., & Wang, S. L. (2012). Foreign direct investment strategies by developing country multinationals: A diagnostic model for home country effects. Global Strategy Journal, 2, 244-261. Makino, S., Lau, C. M., & Yeh, R. S. (2002). Asset-exploitation versus asset-seeking: Implications for Location choice of foreign direct investment from newly industrialized economies. Journal of International Business Studies, 24

ACCEPTED MANUSCRIPT 33,403-421. March, J.G. (1991). Exploration and exploitation in organizational learning. Organization Science,2,71-87. Martin, X., & Salomon, R. (2003). Tacitness, learning, and international expansion: A study of foreign direct investment in a knowledge-intensive industry. Organization Science,14,297-311. Mors, M. L. (2010). Innovation in a global consulting firm: When the problem is too much diversity. Strategic Management Journal, 31,841-872. Mu, Q., & Lee, K. (2005). Knowledge diffusion, market segmentation and technological catch-up: The case of the

RI PT

telecommunication industry in china. Research Policy, 34,759-783. Napshin, S. A., & Azadegan. (2012). Partner attachment to institutional logics: The influence of congruence and divergence. Journal of Management & Organization, 18,481-498.

Patel, P., Vega, M. (1999). Patterns of internationalisation of corporate technology: location vs. home country advantages. Research Policy, 28, 145-155.

Phene, A., & Almeida, P. (2008). Innovation in multinational subsidiaries: The role of knowledge assimilation and

SC

subsidiary capabilities. Journal of International Business Studies, 39, 901–919.

Qian, G., Khoury, T. A., Peng, M. W., & Qian Z. (2010). The performance implications of intra- and inter-regional geographic diversification. Strategic Management Journal, 31,1018–1030. Corporate Change, 26,1019–1038

M AN U

Rahko, J. (2016). Internationalization of corporate R&D activities and innovation performance. Industrial and Ramamurti, R. (2012). What is really different about emerging market multinationals? Global Strategy Journal, 2, 41-47.

Ramaswamy, K., Kroeck, K. G., & Renforth, W. (1996). Measuring the degree of internationalization of a firm: A comment. Journal of International Business Studies,27, 167-177.

Roberto, G., & Michela, C. M. （2012）. Internationalization modes other than exporting: The missing determinant of export performance. European Business Review, 24, 236-254.

TE D

Sanna-Randaccio, F., & Veugelers, R. (2007). Multinational knowledge spillovers with decentralised R&D: a game-theoretic approach. Journal of International Business Studies, 38, 47–63. Serapio, M. G. J., & Dalton, D. H. (1999). Globalization of industrial R&D: An examination of foreign direct investments in R&D in the United States. Research Policy, 28, 303–316. Shimizutani, S., & Todo, Y. (2008). What determines overseas R&D activities? The case of Japanese multinational

EP

firms. Research Policy, 37, 530-544.

Sullivan, D. (1994). Measuring the Degree of Internationalization of the Firm. Journal of International Business Studies, 25, 325-343.

AC C

Tallman, S., & Li, J. (1996). Effects of international diversity and product diversity on the performance of multinational firms. Academy of Management Journal,39,179-196. Tortoriello, M., & Krackhardt, D. (2010). Activating cross-boundary knowledge: The role of Simmelian ties in the generation of innovations. The Academy of Management Journal, 53, 167-181. Verona, G., & Ravasi, D. (2003). Unbundling dynamic capabilities: An exploratory study of continuous product innovation. Industrial and Corporate Change, 12, 577-606. Williamson, E. J. (2010). Cost innovation: Preparing for a ‘value-for-money’ revolution. Long Range Planning, 43, 343-353. von Zedtwitz, M., & Gassmann, O. (2002). Market versus technology drive in R&D internationalization: four different patterns of managing research and development. Research Policy, 31, 569-588. Zahra, S. A. (2005). A theory of international new ventures: a decade of research. Journal of International Business Studies, 36, 20- 28. Zaheer, S. (1995). Overcoming the liability of foreignness. The Academy of Management Journal 38, 341–363. 25

ACCEPTED MANUSCRIPT Zaheer, S., & Mosakowski, E. (1997). The dynamics of the liability of foreignness: a global study of survival in financial services. Strategic Management Journal, 18, 439–463. Zollo, M., & Reuer, J. J. (2010). Experience spillovers across corporate development activities. Organization

AC C

EP

TE D

M AN U

SC

RI PT

Science, 21, 1195-1212.

26

ACCEPTED MANUSCRIPT Table 1 Type

Variable

Measurement

Definition

Dependent variable

International performance (FSTS)

Foreign sales as a percentage of total sales

Performance of the enterprise in foreign markets

Independent variable

Breadth of R&D internationalization Depth of R&D internationalization

Number of countries of foreign R&D subsidiary distribution Proportion of foreign R&D subsidiaries

Moderator variable

Product diversification Enterprise size

Degree of engagement with multiple products or industries

Natural logarithm of enterprise total assets

Enterprise age

Actual operating time

R&D ability

Mean of standardized proportion for R&D input and standardized proportion for technical staff

International experience

Proportion of top managers who meet one of the three features (foreign nationality, overseas work experience and overseas study experience)

Local economic development level

Logarithm of Gross Domestic Product (GDP) for the province where the enterprise is registered

SC

Control variable

The foreign input level of enterprise R&D resources

RI PT

Adjusted Herfindahl index

The foreign distribution extensiveness of enterprise R&D resources

AC C

EP

TE

D

M AN U

Data variables, measurements and definitions