Regionalization of R&D activities: (Dis)economies of interdependence and inventive performance

This paper examines the impact of the extent of the regionalization of MNEs’ R&D activities on their inventive performance. By joining the regionalization theory with the recombinant view of invention, we challenge the implicit assumption that all foreign knowledge-seeking activities will necessarily offer new knowledge to the firm. We introduce the (dis)economies of interdependence, defined as the (dis)advantages that the firm derives due to the interdependence among countries within a region, as a new theoretical mechanism explaining the benefits and costs of regionalization. Our analysis of global pharmaceutical firms shows that an inverted U-shaped relationship exists between the number of regions in which a firm has R&D activities and its inventive performance. Our results also indicate that a firm’s recombinant capability moderates the inverted U-shaped relationship in such a way that, when a firm’s recombinant capability is high, it reaches its turning point in a larger number of regions and the inverted U-shaped relationship is flatter. These results underscore that recombinant capability significantly influences the firm’s ability to derive benefits and reduce costs from the regionalization of its R&D activities. Our findings suggest that it is through the consideration of the (dis)economies of interdependence that offers the essential reasoning needed to unwind the inferred assumption that all foreign knowledge-seeking activities will offer access to new knowledge.