chapter  6
14 Pages

Incentives to stimulate innovation in a global context


Given today’s focus on innovation, it should come as little surprise that research and development spending is on the rise. According to a recent survey by Business Week, in 2005, the 1,000 companies from around the world with the biggest R&D budgets spent a combined total of $407 billion – $20 billion more than the top 1,000 of 2004 (Scanlon, 2006). Innovation lies at the heart of the issue of the growth of firms, domestically and internationally, and firms compete on the basis of the superiority of their information and know-how, and their ability to generate new knowledge. Put differently, firm growth is contingent upon firms’ ability to exploit and expand their technology platforms and foreign direct investment is a pivotal expression of the growth of the firm. The evolutionary process of firm growth often begins with the establishment of exporting facilities where the firm transfers the knowledge acquired in its home market while gradually accumulating new knowledge in the foreign market. Next, the recombined knowledge from the foreign market is transferred internationally throughout the network of subsidiaries, including the home market.