Departamento de Genética Castelar (IN T A ).

REFERENCES

• CFS/STAT (2013), Government Budget Appropriations and Outlays on R&D Database. Brussels, Belspo. (www.belspo.be) • OECD (2002), Frascati Manual. Paris, OECD.

• OECD (2012), ‘Innovation in the crisis and beyond’, in: OECD, Science, Technology and Industry Outlook. Paris, OECD. • OECD (2013), Main Science and Technology Indicators. Paris, OECD.

The internationalisation

of business R&D

In a world based on global supply chains, where parts are produced in one country, shipped across oceans and assembled at the other end of the world, it becomes natural to consider economic phenomena within a network of international trade relations. The advent of new economies and a better educated workforce in developing countries makes it no longer insurmountable to outsource R&D activities to foreign countries.

The internationalisation of R&D activities is nowadays acknowledged as a complex and fundamen- tal aspect of globalisation, which clearly matters for economic development and public policies (OECD, 2005a). As a matter of fact, MNEs account today for most business R&D in the world. The top 700 R&D spenders in the world account for about 50% of worldwide R&D and 70% of business R&D (UNCTAD, 2005). According to the 2012 Industrial R&D Investment Scoreboard, the 1500 world’s top investors represented about 90% of the global business R&D in 2011 (European Commission, 2012).

At the firm level, the decision to internationalise R&D activities relies on two main drivers (Kuem- merle, 1997; Dunning and Narula, 1995). On the one hand, firms may adopt a home-base exploiting or asset-exploiting approach by setting up R&D affiliates abroad in order to adapt technologies and products to the local market conditions. On the other hand, home-based augmenting or asset-seeking strategies have grown the most rapidly since the 1980s (Dunning and Narula, 1995) with firms inter- nationalising their R&D activities in order to tap into knowledge and technological resources located abroad. The decision to locate R&D affiliates abroad is affected by several factors, such as the techno- logical strengths of the countries (Patel and Vega, 1999; Le Bas and Sierra, 2002), institutional factors, including public support for R&D, IPR systems, quality of technological infrastructures, and the cost of qualified research (UNCTAD, 2005). These internationalisation strategies may enhance the productivity of R&D activities but they correlate with higher complexity in terms of management, coordination costs and information asymmetries between corporate headquarters and divisional managers (See Cincera and Ravet (2012) for an empirical assessment of the effect of internationalisation on R&D productivity). This chapter aims at investigating the internationalisation nature of the R&D activities performed by firms located in Belgium. This analysis is highly relevant for a small open economy like Belgium as 66% of the business R&D in Belgium is carried out by foreign-controlled affiliates (CFS/STAT, 2013). Recent data about R&D internationalisation in Belgium are provided by the STIS (Scientific and Technical In- formation Service) department of the Belgian Science Policy Office. STIS is a public agency responsible for the collection and analysis of scientific and technological data. All data were collected within the framework of international agreements with Eurostat and the OECD to guarantee the reliability and international comparability of the data.

In section 3.2, key figures about R&D internationalisation are reported for Belgium from the financ- ing and the ownership perspective. The purpose of this section is to provide Belgian aggregated figures with an international perspective in order to shed light on Belgian specificities in comparison with other important players in the international innovation playing field.

Section 3.3 is devoted to a microeconomic analysis of the foreign-controlled R&D in Belgium. As most R&D in Belgium is conducted by foreign-controlled affiliates, it is essential to examine the charac- teristics of these affiliates with respect to their representation in Belgium, their sectoral penetration and the profile of their R&D activities.

While section 3.3 only considers the nationality of the control of the firms, section 3.4 opposes the international nature of the control (i.e. foreign-controlled R&D) to the international structure of the firm (i.e. multinational enterprise) when assessing the R&D efforts of the enterprises. Given size and industry effects, this section examines whether foreign-controlled affiliates are intrinsically more R&D intensive than their Belgian counterparts, being themselves MNE or not. We show that the internation- alisation of the structure of the firm matters (i.e. Belgian- or foreign-controlled MNE versus non-MNE) rather than the nationality of the owner.

ANNUAL REPORT ON SCIENCE AND TECHNOLOGY INDICATORS FOR BELGIUM 2013

Two approaches may be adopted in order to analyse the internationalisation of R&D in the Belgian business sector. First, R&D investments can be examined from the perspective of the financing source. Since a great share of all R&D investments in the Belgian business sector comes from foreign actors, a thorough understanding of these financing patterns is of vital importance for a better insight into the weaknesses and strengths of the innovation system in Belgium. Disentangling those ties will show how heavily this system depends on foreign capital. The second approach consists in taking into account the strategic ownership of a company. If the decision centre – i.e. the shareholder who owns more than 50% of the company shares and thus has the power to influence the strategic decisions of the company – is located abroad, the company will be regarded as a foreign-controlled affiliate. In the case where the majority of company shares are in hands of a Belgian shareholder we will speak of a domestic or resi- dent-controlled firm. The group of resident-controlled companies can be further divided into compa- nies that have foreign business units under their control and companies that have no foreign companies incorporated in their business structure. Both approaches - the financing source and the ownership - allow us to sketch a global picture of how the branches of the national innovation system are connected with the systems of other countries. As a result of the openness of the Belgian economy, our innovation system becomes more and more integrated into a globalised environment.

Approach 1: internationalisation of R&D from the financing perspective

Capital-intensive and technology-driven companies invest considerable amounts of money in the development of new knowledge. These internal R&D expenses are financed by a wide variety of sources, from capital resources owned by the company to subsidies by public authorities and higher education institutions. A certain share of these investments comes from companies located abroad. These com- panies can be part of the same business group or can belong to other business groups whose aim is to extend their knowledge stock through cooperation. Financing from abroad also includes public funding by non-Belgian public institutions, which mainly includes EU aids. According to Figure 3.1, the share of these foreign capital investments in R&D activities in Belgium during the period 1991-2002 has risen sharply, from approximately 1% to 15%. After having reached a peak in 2002, figures started to dwindle until they stabilised around the level of 10%. A breakdown of these figures according to industrial sec- tors reveals that the strong increase between 1999 and 2000 might be explained by changing strategies in a limited number of companies in the pharmaceutical industry.

FIGURE 3.1 – Evolution of the percentage of business R&D financed by abroad from 1991 to 2011

8 10 12 14 16 0 2 4 6 8 10 12 14 16 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991

Sources: OECD (2013) and CFS/STAT (2013).