Locational Advantages, Absorptive Capacity and Innovation Performance: The R&D Subsidiary View

In the rise of multinational enterprises (MNEs) establishing overseas R&D centers in the developing countries, Taiwan has become one of favorable destinations. However, there is little research to discuss how overseas R&D centers absorb locational advantages of the host countries and, in turn, enhance their innovation performance. Through literature reviews, this paper examines absorptive capacity and synthesizes four types of locational advantages: (1) industrial clusters, (2) talent pool, (3) research base, and (4) government support. Then, a system dynamic model of locational advantage-absorptive capacity-innovation performance is proposed. Via MOEA's MNE R&D Center Program Database and interviews with top managers of MNE R&D centers, the dataset of 38 MNEs R&D centers from 2003 to 2008 is gathered. The systemic dynamic simulations reveal: (1) all four absorptive capacities corresponding four locational advantages positively influence innovation performance of R&D centers; (2) government subsidy significantly increases R&D hires, and R&D networks with local innovative actors. Finally, some managerial and policy implications for MNEs R&D subsidiaries to absorb locational advantages in Taiwan are provided.