Innovation Network in IT Sector: A Study of Collaboration Patterns Among Selected Foreign IT Firms in India and China

1. Introduction

International business literatures have recognized that there are close associations between Multinational Enterprises (MNEs) and superior technology generation (Zander & Sölvell, 2000). MNEs play major role in production and dissemination of new technology globally (Caves, 2007) and usually exploit their home base Research and Development (R&D) strength at offshore location (Fors, 1997). To exploit home based strength firms usually establish facilities close to existing manufacturing and markets (home-base-exploiting). However, firms also acquire new knowledge and capabilities from different knowledge centers dispersed globally (home-base-augmenting). These units generally located close to universities and other research institutions (Kuemmerle, 1999). To drive further profit from innovations developed at home and augment the product development, firms invest in R&D in offshore location (Bartlett & Ghoshal, 1989). However, R&D activity outside the home country is one of the least mobile activities of MNEs because of its complex and tacit nature (Pavitt & Patel, 1999; OECD, 2008). Firms generally restrict and do not offshore R&D due to fear of technological knowledge leakage to its potential rivals. The study of technological activities of large firms shows that firms are firmly embedded in the condition of the technological strength in their home country. Even the most internationalized firms rarely go abroad to compensate for their weakness at home (Patel & Vega, 1999). Also, R&D unit located close to headquarter can easily be communicated and coordinated (World Investment Report, 2005). Beside this, firms can easily coordinate with the government bodies (Niosi, 1997). Despite such obstacles, off-shoring of R&D by MNEs are increasing. Various empirical evidences show that the top spenders on R&D have increasingly invested in R&D outside their home country in recent years. In a survey reported in World Investment Report (WIR) 69% firms stated that their share of foreign R&D is going to increase in future (World Investment Report, 2005). Nearly 70% of the firms in a European Commission study have said that they had increased their R&D off shoring over the last couple of years (OECD, 2008).