R&D, Strategic Investment and Multinational Choice

We analyse the influence of strategic R&D investment on the firms’ mode of foreign expansion: export versus multinational. Strategic investment allows a firm, not only to improve its own level of productive efficiency (as in the no-strategic investment case), but also to affect rivals’ strategic choices (exit-entry, mode of entry, R&D and outputs). Different strategic investment capacities between firms conduce to endogenous competitiveness asymmetries: firms with higher ability to strategically invest tend to invest more in R&D and as such to be more competitive. As a result these firms have higher propensity to become multinational and they use this advantage to compel rivals not to enter the market or in case of entry to force them to the domestic strategy. This can help to explain asymmetric FDI (foreign direct investment) patterns, given that countries that host firms with more power to strategically invest can lead the world markets in terms of multinational activity. In addition, we find that trade is inversely related with the R&D intensity of a sector and the strategic investment capacity of firms. Then international patterns can be directly affected by firms themselves.