Drivers of R&D greenfield investment projects in the communications, software and IT service industries in developing countries

Abstract

Globalization has led to the decentralization of research and development (R&D) activities by multinational enterprises (MNEs). Investment in these activities is affected by both the host-country environment and the investment strategies of the entrant MNEs. Using data on greenfield R&D investment projects for a sample of digital MNEs in the communications, software and IT service industries during the period 2003–2019, we investigate the importance of host-country characteristics on MNEs’ R&D investment and examine the moderating role of the host country’s innovation capabilities as well as two strategies – exploitation versus exploration – on the part of MNEs. We find that the size of investment projects is larger in developing countries than in developed ones, especially when host countries have stronger innovation capabilities and when MNEs pursue strategies of exploitation rather than exploration. Our findings contribute to the extant research in this area and furnish related policy implications for developing countries.