The effect of public support for R&D on
firm internationalization
Daniël Hendriks 11419628 June 23, 2017 Final ThesisMSc Business administration: International management University of Amsterdam
Supervisor: Dr. Niccolò Pisani Second reader: Dr. Carsten Gelhard
Statement of originality
This document is written by Daniël Hendriks who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
ABSTRACT
Extensive research has been conducted about the effect of public support for R&D on innovation and the influence of innovation on internationalization. However, the direct relationship between public funding for R&D and the internationalization of supported firms remains unexplored. This research studies the direct effect of public support for R&D on firm internationalization. Firms’ innovation focus and collaboration with institutional partners will be tested as moderating variables of the main relationship.
Multiple regression analysis is performed using a panel survey from 2011 on Spanish manufacturing firms. The results provide strong evidence for a positive direct relationship between receiving public support for R&D and the corresponding degree of firm
internationalization. No proof was found for a positive moderation of collaboration with institutional partners on the effect of public support for R&D on the degree of firm internationalization. The positive direct relationship was however found to be negatively moderated by a firm’s innovation focus, albeit at a lower significance level. In addition, the regression indicates that the negative moderating effect is the strongest for firms with a low innovation focus. The academic, managerial and public policy implications of this study are discussed at the end of the thesis.
Keywords: Internationalization · Public support · Public support for R&D · Research & development · Innovation focus · Collaboration with institutional partners · Innovation
TABLE OF CONTENT
1. Introduction ... 5
2. Literature Review ... 8
2.1 Factors for successful internationalization ... 8
2.1.1 Innovation and internationalization ... 10
2.2 Effect of public funding on research & development activities ... 11
2.2.1 Effect of public support for R&D on innovation ... 14
2.3 Effect of public funding on internationalization ... 15
2.4 Research gap and research question ... 16
3. Theoretical framework ... 18
3.1 The effect of public support for research and development on internationalization ... 18
3.2 The moderating effect of collaboration with institutional partners ... 22
3.3 The moderating effect of a firm’s innovation focus ... 24
4. Methods ... 29
4.1 Sample and data collection ... 29
4.2 Variables ... 30
4.2.1 Dependent variable ... 30
4.2.2 Independent variable ... 30
4.2.3 Moderator variables ... 31
4.2.4 Control variables ... 32
4.3 Statistical analysis and results ... 33
5. Discussion ... 39
5.1 Academic relevance ... 39
5.2 Managerial implications ... 41
5.3 Public policy implications ... 42
5.4 Limitations and suggestions for future research ... 43
6. Conclusion ... 46
1. Introduction
A market failure can lead to suboptimal spending on research & development by firms (Arrow, 1962). Factors such as limited appropriability of returns to R&D activities or financial constraints derived from imperfect capital markets influence firms’ expenditures on R&D negatively (Blanes & Busom, 2004). Governments can choose to fund research & development (R&D) of firms to alleviate the negative effects of a market failure. Removing the negative effects of the market failure can create employment, welfare and knowledge spillovers.
Another desired effect of stimulating R&D expenditures is increased innovation of firms. The based view of the firm suggests that innovation is a knowledge-intensive process (Doraszelski & Jaumandreu, 2013; Nonaka & Takeuchi, 1995). Research and development activities are a means of creating a stock of scientific knowledge (Griliches, 1979; Mansfield, 1984). Therefore, research & development is the most important component of innovation and is situated at the front end of the innovation life cycle. A firm can use knowledge from R&D in different ways to develop innovations.
Penrose (1959) assigned an important role for internationalization in connection to innovation. Penrose’s (1959) highly influential study ‘The theory of the growth of the firm’ regarded the resource pool of the firm both as the engine as well as the constraint of the growth of the firm. On the one hand, unused resources and capabilities constitute the main potential for economic growth. On the other hand, the firm’s inability to create new resources with its current resources limits its potential to expand. Thus, internationalization is a means to exploit firms’ resources fully. Innovation can create new opportunities from a firm’s existing resources. Kafouros, Buckley, Sharp and Wang (2008) found that firms are unable to benefit from innovation if their international activity remains below a threshold level.
Therefore, internationalization is crucial in both exploiting firm resources and increasing the effectiveness of innovative activities.
The literature has studied two important relationships. On the one hand, the literature has studied the impact of public funding for R&D on total research & development expenditures and innovation (Antolín-López et al., 2015; Becker, 2015; Guo et al., 2016; Lach, 2002; Le & Jaffe, 2016; Lööf & Hesmati, 2004; Un & Montoro-Sanchez, 2010). On the other hand, the literature has studied how increased knowledge intensity and innovation influences internationalization (Cassiman & Golovko, 2011; Denicolai et al., 2014; Filipescu et al., 2013; Grant, 1996; McEvily & Chakravarthy, 2002; Umemoto, 2002; Yi et al., 2013). However, the literature has paid no attention to the direct effect that public funding for research & development has on the internationalization of firms. Given the important
interaction between firm innovation and internationalization, it would be of academic interest to study the effect that public funding for research & development has on firms’ degree of internationalization. To fill this gap in the literature, this thesis aims at finding the causal relationship between public support for research & development and firms’
internationalization.
I hypothesize that there is a positive direct effect of public support for R&D on
internationalization. I expect this positive relationship to be stronger for firms that collaborate with institutional partners such as universities and public research institutes (PRI’s). In
addition, I suggest a firms’ innovation focus will negatively moderate the effect of public support for R&D and internationalization. To test these hypotheses, I will conduct a multiple regression analysis at the firm-level, based on cross-sectional data from a large database created in Spain. This database, the ESEE, consists of a panel survey conducted on a yearly
basis by the SEPI Foundation in cooperation with the Spanish Ministry of Industry. I will use data from the ESEE database for the year 2011.
This thesis is organized as follows. In the literature review I will provide a detailed overview of the literature on the factors determining successful internationalization and the impact of public funding on R&D activities and innovation. The literature review is followed by the theoretical framework in which the hypotheses are developed. Subsequently, the sample, variables and statistical results are addressed in the methodology section. These results will be discussed in the discussion section. Finally, I conclude my thesis with limitations of the research and will I provide directions for further research.
2. Literature Review 2.1 Factors for successful internationalization
The following section describes what the important factors are for successful
internationalization of firms and how research & development influences such factors. Much literature builds on resource-based theory to assess the difficulties and success of
internationalization by firms. Resource-based theory (RBT) describes a firm as a bundle of resources which is used to generate products or services. According to Barney (1991), firm resources are the assets, the capabilities, the organizational processes, the firm attributes, the information and the knowledge that is controlled by a firm. These resources are the tangible and intangible assets that are tied to a firm (Wernerfelt, 1984). A firm is said to have a competitive advantage “when it is implementing a value creating strategy not simultaneously implemented by any current or potential competitors” (Barney, 1991). A sustained
competitive advantage is an advantage of which competitors are unable to duplicate the benefits of (Barney, 1991). Some advantageous resources are not firm-specific but widely available (Penrose, 1959). Thus, whether a resource is advantageous depends on the competitors against which the firm is compared (Cuervo-Cazurra, Maloney & Manrakhan, 2007). Consequently, comparing firms’ resources with international competitors’ resources can assist in identifying difficulties that the firm face when it internationalizes.
The following resource characteristics play a crucial role in firms’
internationalization success. First, it is of importance whether the advantageous nature of resources can be sustained upon transfer to a new country - specifically, whether a resource is rare, imitable or substitutable in a different location (Barney, 1991). Of additional importance is whether a firm-specific resource that is developed in one context conflicts with
is more likely to face difficulties when it lacks complementary resources required to manage an increase in scale, compete against established local players, or operate in the institutional context of the new host country (Cuervo-Cazurra et al., 2007).
The knowledge-based view of the firm builds upon and extends the resource-based view of the firm. Proponents of the knowledge-based view argue that the resource-based perspective does not go far enough in recognizing the important role of knowledge in firms. In the knowledge-based view knowledge is regarded as having special characteristics, rather than being a generic resource. A clear difference between the resource-based view and the knowledge-based view is that the latter consists primarily of intangible and immobile resources. In addition, knowledge does not depreciate in the way traditional economic resources do, and can generate increasing returns (Grant, 2002).
By performing R&D, firms can increase their knowledge stock (Doraszelski &
Jaumandreu, 2006; Esposti & Pierani, 2003; Griliches, 1979; Mansfield, 1984). The effects of an increase in the knowledge stock for internationalization are described next. Firstly,
knowledge is one of the most important assets for the creation of sustained competitive advantage (Umemoto, 2002). The tacit, specific and complex knowledge that the organization develops inside can generate long lasting advantages because that knowledge is rare and hard to imitate (McEvily & Chakravarthy, 2002). This will increase the feasibility of a sustainable competitive advantage internationally. Secondly, a superior knowledge base is associated with higher strategic flexibility and faster reaction to environment changes (Grant, 1996; Volberda, 1996). This will increase the possibilities for internationalization. Finally, internationalizing firms will most likely acquire external assets. To make best use of externally-acquired assets, firms need to possess internally-generated knowledge assets
(Denicolai et al., 2014). Therefore, when connected with the appropriate complementary assets, knowledge is an important driver of successful internationalization.
On the other hand, the recent changing nature of knowledge assets has important implications for the internationalization possibilities. The increased importance of intangible assets might set limits to transferring knowledge and replicating capabilities, even if some of them are unused and thus in principle able to generate the Penrosian growth effect (Penrose, 1959; Teece, 2007). There are many reasons why intangible, tacit pieces of knowledge and causally ambiguous routines and capabilities can set limits on the growth process when internationalizing, such as bounded rationality, causal ambiguity and path dependency (Teece, 2000; Kumar, 2009). Kylaheiko et al. (2011) find that, because of these
characteristics of intangible knowledge assets, there are constraints on internationalization opportunities provided by R&D. Adding new intangible knowledge to the knowledge stock can provide difficulties for internationalization. Kylaheiko et al. (2011) reason that, at least in the short run, firms experience a tradeoff between more innovation or internationalization. Consequently, innovation and internationalization strategies are substitutes, at least in the short run (Kylaheiko et al., 2011). This is contradictory to the results of Kafouros et al. (2008) who state that internationalization is a way to improve the benefits of innovation.
2.1.1 Innovation and internationalization
As mentioned, innovation is a knowledge-intensive process. Knowledge from R&D provides the foundation for innovation (Nonaka & Takeuchi, 1995, Griliches, 1979;
Mansfield, 1984; Doraszelki & Jaumandreu, 2006). Ulku (2007) finds that knowledge is the main determinant of innovation and that R&D intensity increases the rate of innovation.
Therefore, it is important to address how innovation affects the international performance and international focus of firms.
Many studies have found significant results that innovation enhances international performance (Basile, 2001; Cassiman & Golovko, 2011; Filipescu, Prashantham, Rialp, & Rialp, 2013; Girma, Gorg, & Hanley, 2008; Guan & Ma, 2003; Singh, 2009; Yi, Wang, & Kafouros, 2013) In addition, internationalization provides an innovating firm with the necessary knowledge for innovation. Being engaged in international activities extends the pool of sources for new ideas and other important knowledge resources from which the firm can draw the necessary elements for its innovation process (Kafouros et al., 2008; Korbin, 1991). In other words, innovation increases international performance and opportunities and will stimulate firms to focus on internationalization to increase the efficiency of innovation.
2.2 Effect of public funding on research & development activities
This section studies first how the tools for public funding realize actual expenditures on research & development. Secondly, this section studies how public funding for research & development affects innovation.
Public funding for research and development can be separated into four types of public funding instruments (OECD, 2012a): (1) grants, where funding is secured ahead of project’s launch; (2) soft loans, where loans are secured for projects that banks are reluctant to finance; (3) Tax incentives; and (4) awards that retrospectively recognize excellence, which usually come in the form of a financial reward. This thesis will focus on grants and tax incentives.
Several researches have addressed the application- and assignment procedures for public support (Heckman & Smith, 2004; Giebe, Grebe & Wolfstetter, 2006; Torres et al.,
2016). Selection for public funding can be instigated from both the firm and government side (Torres et al., 2016). On the one hand, it is a reasonable assumption that firms self-select in picking public initiatives for support. Based on firms’ awareness of available support instruments and when one or more are suitable for their situation, the firms’ managers can decide to apply. In case of a tax incentive, a manager should also be aware of such incentives first to be able to make use of them. In such a way, firms select to participate via the
application process in a program themselves. The point of closure is when public agencies choose which firms’ applications will, for example, be accepted for enrollment in a program or are eligible for the receipt of support (Torres et al., 2016). However, selection may also be instigated from the government side. For instance, governments often choose ‘national
champions’ to receive substantial support to become successful global players (Ades & Tella, 1997).
The commonly used application- and assignment procedures for public support provide support to firms unequally. Blanes and Busom (2004) found that public agencies often assign funds to projects that involve higher risks than private investors are willing to take and to projects that have higher chances of commercial success. In line with this, Giebe et al. (2005) state that the commonly used funding procedures are inefficient in assigning funds to firms. Funding is not assigned to firms that need support the most in terms of financial constraints, but is instead assigned to firms with more profitable projects.
If public support is granted, firms might substitute public for private investment. This possible crowding-out effect has gained much attention in the literature (Huergo, Trenado & Ubierna, 2015). Several studies find that government R&D subsidies crowd out private R&D inputs (Acemoglu, Akcigit, Bloom & Kerr, 2013; David, Hall & Tool, 2000; Wallsten, 2000). However, the studies that find no such effects outweigh the evidence on crowding out effects.
Several studies found no crowding-out effects, neither full nor partial (Gonzaled & Pazo, 2008; Lööf & Hesmati, 2004). In addition, many studies found that firms invest more in R&D activities when funded (Aerts & Schmidt, 2008; Audretsch, Link & Scott, 2002; Becker, 2015; Czarnitzki & Lopes-Bento, 2011; Görg & Strobl, 2007; Lach, 2002; Lööf & Hesmati, 2004). Acosta, Coronado and Romero (2015) found a great impact of public funding. They found that firms receiving national funds invested 54% more in R&D than firms without public support.
Several studies compared the effects of the different instruments for public funding of research & development. It was found that different types of firms make use of support differently (Busom, Corchuelo & Martinez-Ros, 2014; Gonzalez, Jaumandreu & Pazó, 2005; Lach, 2002). Lach (2002) found that large firms used the funds for projects that would have been undertaken even in a case without the subsidy, whereas small firms use the subsidies to fund projects that would not have been undertaken without them. Such differences in the effects of a subsidy may exist because of the higher cost of raising capital for small firms than for large firms. In line with this, Gonzalez et al. (2005) state that subsidies can, in fact, play a role in stimulating R&D activities. However, they suggest that subsidies mostly reach firms that would have performed R&D anyway and therefore, when using only subsidies, the inducing dimension of public support might be neglected.
Busom et al. (2014) compared public funding through grants and subsidies with tax credits. Their results suggest that subsidies, unlike tax credits, may be able to induce new R&D investment. These findings thus suggest that direct funding and tax credits are not perfect substitutes in terms of their ability to reach firms experiencing barriers associated with market failures. What’s more, the findings suggest that subsidies may be better suited
than tax credits to encourage firms, especially young knowledge-based firms, to start doing R&D.
2.2.1 Effect of public support for R&D on innovation
This section describes how public funding for R&D affects innovation of firms. Un & Montoro-Sanchez (2010) found that public funding is a key driver of innovation in
companies in the service sector. Service firms structurally lack complementary resources for innovation, such as formal investment in R&D and skilled employees (Leiponen, 2005). Therefore, it is likely that public support for research & development has a positive effect on innovation. However, such public funding still needs to be complemented with private funding to generate innovations (Un & Montoro-Sanchez, 2010). Antolín-López, Céspedes-Lorente, García-de-Frutos, Martínez-del-Río and Pérez-Valls (2015) found that, for
incumbent firms, public support for R&D is an effective means for stimulating innovation. For new ventures, however, public support for R&D did not stimulate innovation (Antolín-López et al, 2015). Guo, Guo & Yiang (2016) found that publicly funded Chinese firms generate significantly higher innovation outputs than non-supported counterparts. In line with this, Le and Jaffe (2016) found that public support is effective in stimulating innovation.
The next section reviews the literature on the direct relationship between public support generally and firm internationalization. Doing this assists in getting an idea on the more specific direct relationship between public funding for research & development and internationalization.
2.3 Effect of public funding on internationalization
Firms often view internationalization as a major strategy for recouping heavy investments in research & development (Kyläheiko, Jantunen, Puumalainen, Saarenketo & Tuppura, 2008). For young ventures in particular, R&D expenditures are generally a major cost item. In addition, firms internationalize their operations to increase the returns on their innovations from research & development and reduce the risk of selling a product in a single market (Hitt, Hoskisson, & Ireland, 1994). Finally, internationalization can protect firms against rapid imitation by keeping their R&D-based knowledge tacit as long as possible (Kafouros et al., 2008; Zahra, 1996).
When firms are publicly funded to perform research & development, the need to internationalize to recoup major investments, reduce the risk of innovation and protect themselves against rapid imitation is less needed. In a different sense, however, this extra funding could also induce them to perform even larger and more risky research &
development which will lead to even more internationalization. The latter effect is confirmed by a recent study by Torres et al. (2016).
The study by Torres et al. (2016) focuses on the relation between public funding for internationalization and internationalization. Their results provide evidence that two types of firms tend to dominate the application for and use of public funding. Firms with fewer resources and capabilities on the one hand, and firms exposed to more difficult market conditions through internationalization on the other, tend to be more aware of public incentives for internationalization and make greater use of them. Torres et al. (2016) demonstrate that the firm with fewer resources and capabilities makes indeed great use of public support incentives. Firms with superior resources and capabilities make use of the funding to overcome the greater risk associated with their internationalization decisions.
These firms employ support for internationalization as a tool for externalization of the risk encountered in internationalization (Torres et al., 2016). Better-endowed firms predominate in the application for public incentives because such firms engage in modes of entry, or select locations, with higher levels of risk, precisely because of the availability of public support. From this, it can be inferred that higher capability firms are seeking risk premiums in the form of higher expected profits from more demanding conditions, and that home policy incentives assist them in doing this. In other words, firms evolve to more demanding conditions of internationalization by externalizing the risk through the opportunistic use of home country public support.
2.4 Research gap and research question
Firstly, this chapter has addressed the influence of knowledge and innovation on internationalization. Increases in firm-specific knowledge stock through R&D can increase the feasibility of obtaining and sustaining a competitive advantage and provide better strategic flexibility and faster reactions to environment changes (Grant, 1996; McEvily & Chakravarthy, 2002; Umemoto, 2002; Volberda, 1996). In addition, the firm will be able to make better use of externally-acquired assets (Denicolai et al., 2014). However, increases in the degree of intangible knowledge assets can obstruct internationalization efficiency (Denicolai et al., 2014; Kylaheiko et al., 2011). The literature demonstrates that innovation increases international performance (Basile, 2001; Cassiman & Golovko, 2011; Filipescu et al., 2013; Girma et al., 2008; Guan & Ma, 2003; Singh, 2009; Yi et al., 2013). Increased innovation will also increase the firm’s focus on internationalization (Kafouros et al., 2008; Korbin, 1991).
Secondly, this chapter studied the effect of public funding for R&D on research & development expenditures and innovation. Many studies provide evidence that no crowding out of private R&D expenditures occurs and even find additive effects (Aerts & Schmidt, 2008; Becker, 2015; Czarnitzki & Lopes Bento, 2011; Gonzalez & Pazo, 2008; Lach, 2002; Lööf & Hesmati, 2004). A few studies find evidence for crowding out of private spending (Acemoglu et al., 2013; David et al., 2000; Wallsten, 2000). Different public funding
instruments affect different types of firms differently (Torres et al., 2016). Subsidies and tax credits are no substitutes in stimulating R&D and funds often end up being assigned to more risky or lucrative projects (Blanes & Busom, 2004; Busom et al., 2014; Giebe et al., 2006; Torres et al., 2016). Most importantly, much recent literature finds a positive effect of public funding for R&D on firm innovation (Antolín-López et al., 2015; Guo et al., 2016; Le & Jaffe, 2016; Un & Montoro-Sanchez, 2010).
The literature describing the effects of public funding in general on
internationalization directly is limited. On the one hand, public support can reduce the need to internationalize as a means of reducing the risk of failure of research & development
(Kafouros et al., 2008). On the other hand, literature has shown that public funding induces firms to take on even more risk (Blanes & Busom, 2004; Torres et al., 2016). There is no literature studying the effects that instruments for stimulating research & development, such as grants, tax subsidies or award programs have on the internationalization of firms directly. To fill this gap in the literature, this thesis studies the direct relationship between public funding for research & development and firm internationalization.
3. Theoretical framework
3.1 The effect of public support for research and development on internationalization To come up with innovations, actors inside the firm need useful inputs to produce innovative outcomes. The stock of knowledge inside the firm provides these inputs. Research and development is a means of creating new knowledge that is added to the pre-existing knowledge stock. Knowledge from R&D can be either provided internally through in-house R&D or acquired externally from other firms that have performed the R&D activities. Both types of knowledge from R&D are added to the pre-existing knowledge stock of the firm. Internally generated knowledge will be costlier but also more suited for the firm’s needs because a firm performing R&D internally has the best idea of what is necessary for its business and will perform R&D accordingly. In comparison, externally acquired knowledge is not developed for the specific needs of the company and is more widely available.
Notwithstanding the differences in the value they provide to the firm, by performing R&D internally or acquiring knowledge from R&D externally, the pool of pre-existing knowledge is adjusted by adding new knowledge. The resulting pool of knowledge provides the
necessary inputs for innovation of products, services or processes inside the firm. In other words, R&D provides a stream of knowledge that is needed to create new products, services or processes.
The new knowledge that was generated internally or acquired externally provides additional advantages besides serving as a facilitator of innovation. Knowledge is extremely important for obtaining a sustainable resource advantage (Umemoto, 2002; McEvily & Chakravarthy, 2002). Knowledge as a resource has the promise of providing long-lasting advantages because knowledge is highly idiosyncratic and is hard to copy. Especially tacit knowledge, which is hard to codify and therefore hard to transfer, can provide such
long-lasting advantages. Thus, by stimulating firms to acquire or generate important knowledge, public support will increase firms’ possibilities for obtaining long-lasting advantages. The relatively increased possibilities that supported firms now have for obtaining long-lasting advantages increases their international opportunities.
Providing public support for R&D to firms is a way to elevate firms’ total
expenditures on the acquisition of external knowledge or in-house R&D. If firms don’t fully replace their private spending with public funds, total expenditures will be increased. In other words, the government aims at providing additive effects for spending of firms on R&D. The studies that find additive effects of public funding for R&D outweigh the studies that find evidence for crowding out (Aerts & Schmidt, 2008; Becker, 2015; Czarnitzki & Lopes-Bento, 2011; Gonzalez & Pazo, 2008; Lach, 2002; Lööf & Hesmati, 2004). What’s more Acosta et al. (2015) found that firms receiving national funds invested 54% more in R&D than firms without this type of public support.
Thus, supported firms will have, all else equal, higher total R&D expenditures. This means that the supported firms are partaking more in R&D activities themselves or in the acquiring of external knowledge to enable innovation than firms that do not receive such support. For in-house R&D activities, supported firms will be able to perform lengthier, more in-depth, less constrained R&D activities. Supported firms will also have more financial resources available to acquire external R&D.
Consequently, the increased R&D expenditures that public support brings to firms will, all else equal, lead firms to perform more in-house R&D activities or to acquire more external knowledge. Supported firms will obtain more internally generated knowledge, externally acquired knowledge or a combination of the two. This will add up to the pre-existing knowledge, providing an elevated pool of knowledge necessary for innovation. As
previously argued, this knowledge is the necessary pool of inputs that actors in the firm need to become innovative. Therefore, by providing funds to firms, the government will be able to increase innovation. Recent studies on the direct effect of public funding for R&D on
innovation have backed the findings that public funding for R&D increases innovation of firms (Antolín-López et al., 2015; Guo et al., 2016; Le & Jaffe, 2016; Un &
Montoro-Sanchez, 2010). Given these arguments and the recent empirical evidence, I argue that public funding for R&D will increase internationalization of firms, through increased firm
innovation.
In addition, Blanes and Busom (2004) found that public agencies often assign funds to projects that involve higher risks than private investors are willing to take and to projects that have higher chances of commercial success. Funding is not assigned to firms that need support the most in terms of financial constraints, but is instead assigned to firms with more profitable projects. Extending the notion that governments actively stimulate R&D of firms with more profitable projects, governments are only increasing the differences in innovative opportunities and capabilities of firms. Therefore, because support is often provided to firms with more profitable projects, these supported will firms have higher internationalization levels than non-supported firms.
The literature has shown that public funding induces firms to take on even more risk (Blanes & Busom, 2004; Torres et al., 2016). By enabling supported firms to take on more risks, it is expected that these firms will internationalize sooner, since internationalization involves significant risks (Torres et al., 2016). In addition, public funding will enable firms to perform riskier research and development. Internationalization can then serve as a means of minimizing the risk of failure of the riskier R&D performed.
Finally, the increased innovative efforts that public funds provide will stimulate firms to become more internationally focused. To increase the innovative outcomes of its elevated R&D activities, the firm will need to increase additions of valuable knowledge to the
knowledge stock (Kafouros et al., 2008). International interaction brings in important foreign knowledge which the firm can use as inputs for innovation. Firstly, foreign knowledge will provide more value to the firm than domestic knowledge which it already has access to. Secondly, by engaging internationally the firm will come to learn more on the international demand, so that the resulting innovations are serving actual international demand. Thus, the firm will need foreign knowledge and information on international demands so that it can increase the efficiency of its innovative efforts. Being engaged in international activities broadens the knowledge sources and gives important indications of international demand. From this, the firm can draw the necessary elements for its elevated innovation process. Greater access to knowledge fosters a wider scope of scientific and industrial investigation and discovery (Capron & Cincera, 2000). Thus, these increasingly innovating firms will increase their international scope naturally to obtain valuable knowledge. Therefore,
supported firms will have, all else equal, higher levels of internationalization than firms that don’t receive support.
In sum, public support for R&D will generally be effective in increasing internationalization of firms because of increased innovation advantages from added knowledge. In addition, support is often provided to highly profitable firms. This will increase performance and internationalization of such firms even more relative to non-supported firms with less profitable projects. Public support will also enable firms to take on more risks which will lead to increased internationalization. Finally, public funding increases supported firms’ international focus because of elevated innovation levels. Therefore, I
hypothesize as follows:
Hypothesis 1: There is a positive relationship between public funding for R&D and internationalization.
3.2 The moderating effect of collaboration with institutional partners
According to the innovation systems approach, the flows of technology and
information among people, firms and institutions are key to the innovative process (Carlsson & Stankiewicz, 1991). Innovation and technological developments are the result of the relationships among actors in the system, which includes firms, universities and public research institutes (PRI’s). The innovative capacity of firms is determined by collaboration and cooperation in the national innovation systems. How innovative firms become depends on the collaboration of these firms with institutions such as universities or technology centers.
Linking collaboration with institutional partners to firm performance shows that high levels of technical collaboration, technology diffusion and personnel mobility contribute to the improved innovative capacity of firms in terms of products, patents and productivity. Collaboration with institutional partners can take place nationally or internationally. There are however general advantages to national and international collaboration with universities or PRI’s. There can be strong complementarities between academic research and firms’ R&D (George, Zahra & Wood, 2002). In addition, collaboration with universities and PRI’s may enhance firms’ problem solving abilities and facilitate the integration of external knowledge into the firm’s own processes (Fabrizio, 2006). Such institutional partners conduct basic and exploratory research that is typically expensive for firms to undertake and help firms to transform knowledge into commercially successful products (George et al., 2002; Zucker,
Darby & Armstrong, 1998). Because firms need to renew their capabilities on a continual basis, access to external inputs enables them to keep up with the latest technological advances and to develop new technologies (Kafouros, Wang, Piperopoulosa & Zhang, 2012)
International linkages can help companies to tap into global pools of knowledge, to have access to major research facilities and human resources (OECD, 2012a). Greater access to knowledge fosters a wider scope of scientific and industrial investigation and discovery (Capron & Cincera, 2000).
The development of R&D linkages involving universities, PRIs and companies within and across countries can be facilitated by institutional relationships, such as formal work agreements and co-operation activities (Capron & Cincera, 2000). International R&D linkages can take different formats such as international co-invention and co-authorship, transferring of researchers, open access to international research data and networks (Archibugi & Iammarino, 2002; Narula & Hagedoorn, 1999; OECD, 2012a).
Thus, whether firms collaborate with institutional partners, such as universities and PRI’s, influences the efficiency of their innovative efforts. Therefore, how a firm’s publicly stimulated innovation efforts affect international opportunities is contingent on whether the firm collaborates with institutional partners. Increased collaborative R&D between firms, universities and public research institutes and the diffusion of knowledge and technology to firms will lead to more efficient and successful innovation. Therefore, I expect that
collaboration with institutional partners will lead to a positive increase in the effect that public funding for R&D has on internationalization. More formally, I hypothesize:
Hypothesis 2: The positive relationship between public funding for R&D and internationalization is positively moderated by collaboration with institutional partners
3.3 The moderating effect of a firm’s innovation focus
Innovation reflects a broad spectrum of different activities and tasks which are specific to the firm and the problem to be solved. Innovation can include R&D, but must not automatically do so (Koschatzky, 1999). However, R&D remains the main fraction of firm innovation. Accordingly, Becker and Dietz (2004) call R&D expenditures over sales the firm’s innovation engagement. This study will call the ratio of sales dedicated to R&D a firm’s innovation focus.
A market failure can lead to suboptimal spending on research and development by firms (Arrow, 1962). Factors such as limited appropriability of returns to R&D activities or financial constraints derived from imperfect capital markets influence firms’ expenditures on R&D negatively (Blanes & Busom, 2004). In addition, uncertainty and negative risk
perceptions may constrain firms’ access to external financing. Finally, R&D is typically characterized by economies of scale that create strong incentives for dominant firms to monopolize markets. Any of such restricting factors will result in firms to underinvest in innovation (Martin & Scott, 2000).These factors leading to private underinvestment in innovation will differ from sector to sector across the economy (Martin & Scott, 2000). On balance, market mechanisms may to fail to provide the right incentives to firms for increasing their innovation focus up to optimal levels.
Public agencies must identify those firms with R&D projects which would not be carried out without support (Blanes & Busom, 2007). Firms with a small innovation focus might find it hard to overcome barriers such as scale disadvantages and limited access to external financing and therefore sustain a small level of innovation focus. Especially factors such as scale disadvantages and limited access to external financing will lead to sustained underinvestment of firms with a low innovation focus. On the contrary, it is reasonable to
assume that firms with a high innovation focus are less constrained by such factors as limited appropriability, scale advantages or access to financing to perform R&D. In other words, a large innovation focus indicates that focusing on innovation is already attractive. On the other hand, for firms with a small innovation focus, it might not be attractive or feasible to perform similar amounts of R&D. To start focusing more on innovation, these firms are relatively dependent on the government as public agencies can increase attractiveness of innovative activities.
Firms that encounters underinvestment because of market failures will benefit of public support for R&D because it will become more attractive or feasible to undertake innovative activities than before. Therefore, the supported firms will increase its innovative efforts. These innovative efforts can include R&D, but must not automatically do so and can also be realized by organizational changes, engineering work, or the development of a new service (Koschatzky, 1999). Firms with a low innovation focus can have many potentially innovative projects but these projects have not been sufficiently attractive or feasible to undertake. When funded, increasing innovative efforts will become more desirable, and therefore these firms with a low innovations focus are expected to benefit highly from the extra innovation (Torres et al., 2016). Firms that already have a large focus on innovation do not encounter the same barriers to innovation as firms with a low innovation focus. When receiving public resources for R&D, these type of firms’ R&D activities and other innovative activities will not change as much as that of firms with a small innovation focus (Lach, 2002). This is because the attractiveness or feasibility of a large innovation focus was already at a substantial level. By making innovation more attractive, public support can effectively induce firms with a small innovation focus to become more innovative. This is because public support for R&D for firms that underinvest because of market failures will induce them to
perform activities they would not without support. But the firms that already have a large focus on innovation are less induced to perform new activities that weren’t possible without public support. Therefore, the incremental effect of public support on innovation for firms with higher levels of innovation focus will be lower than for firms with low levels of
innovation focus. The positive effect of public funding on innovation is likely to decrease the less dependent firms are on the government for their innovative activities. The effect of public support for R&D on internationalization will be the highest for firms without a focus on innovation, because of their large dependence on the government to be able to perform R&D.
In line with this, Lach (2002) found that large firms use the funds from public support for R&D for projects that would have been undertaken even in a case without the subsidy. Small firms use the public support to fund projects that would not have been undertaken without them (Gonzalez et al., 2005; Lach, 2002). Arguably, small firms have a lower innovation focus whereas large firms have a higher innovation focus. Therefore, these findings corroborate with the notion that firms with a low innovation focus can be stimulated more to become innovative than firms with a high innovation focus.
In addition, it is reasonable to assume that firms that receive public support with a high innovation focus apply for public support programs to compensate for competitive disadvantages. Especially firms with a large innovation focus that are subject to difficult market conditions, or have weaker capabilities, will make use of public support programs. Torres et al. (2016) stress the importance of the awareness of firms of public support programs. Torres et al. (2016) found that firms with fewer capabilities and firms exposed to more difficult market conditions tend to be more aware of public incentives for
especially firms that have a large focus on innovation but have weaker capabilities or are subject to difficult market conditions will make use of public support programs. If these firms have found in past endeavors that their innovative efforts have failed to be successful they will apply for public R&D programs. These firms have been and are struggling to be
competitive given its resources, capabilities or market position. It is expected that firms with a high innovation focus but that are receiving public support will be less competitive than the non-supported firms with a similar innovation focus. Consequently, these firms will be less international than their non-supported counterparts.
In sum, public funds can induce firms with a low focus on innovation to start undertaking the innovative activities which were previously undesirable or impossible because of market failures (Gonzalez et al., 2005; Lach, 2002). Firms that already have a large focus on innovation will use the funds for projects it already was undertaking.
Therefore, it is expected that the increase in innovation of firms with a low innovation focus is higher than for firms with a high innovation focus. As an effect, it is expected that the increase in internationalization of firms with a low innovation focus is higher than for firms with a high innovation focus. Secondly, it is reasonable to assume that the supported firms with a large innovation focus have applied for such support or are applicable for support programs because of its weak capabilities or market position. Torres et al. (2016) state that indeed firms with weaker capabilities and more difficult market conditions apply for public support programs. Performance of these supported firms with a high innovation focus will be lower than non-supported firms with a high innovation focus. These firms have been and are struggling to be competitive given its resources, capabilities or market position and have therefore applied for the receiving of public support for R&D. Therefore because of their
weaker overall performance, internationalization of firms with a high innovation will be significantly lower than their non-supported counterparts.
Hence, I hypothesize:
Hypothesis 3: The positive relationship between public support for R&D and internationalization is negatively moderated by a firm’s innovation focus
The previously discussed hypotheses result in the conceptual framework as illustrated in Figure 1.
4. Methods 4.1 Sample and data collection
This study uses a cross-sectional research design to examine the direct effect of public funding for R&D on firms’ internationalization levels. Two moderators will be included, which are the firm’s collaboration with institutional partners and the firm’s innovation focus. I will conduct a multiple regression analysis at the firm-level, based on cross-sectional data from a large database developed in Spain.
The database used is called the Encuesta sobre Estrategias Empresariales (ESEE) or Survey on Business Strategies (SBS). This database consists of a panel survey conducted on a yearly basis by the SEPI Foundation (the Spanish Industrial Firm Association) in cooperation with the Spanish Ministry of Industry. Since the project’s inception in 1990, about 1800 manufacturing firms are surveyed each year using a questionnaire with 107 questions and more than 500 specific fields. The database also includes information on the firms’ balance sheet and profit and loss statements. The ESEE’s population of reference is composed of firms with 10 or more employees within the manufacturing industry. The geographical scope of reference is the Spanish economy as a whole, and the survey uses yearly variables. This thesis will make use of data on Spanish manufacturing firms from the year 2011.
The ESEE provides several important strengths. Firstly, the database is created professionally in cooperation of the Spanish Ministry of Industry and a large, and growing, number of researchers. Secondly, the large number of firms participating results in an exhaustive and representative dataset. Finally, a large volume of high quality research has been based on the ESEE survey. The database has been utilized in many important previous studies (Cuervo-Cazurra & Un, 2007; Cassiman & Golovko, 2011).
Spain serves as an appropriate sample for this study as the Spanish government has made significant efforts to modernize and upgrade its traditional manufacturing and services sectors and to expand into more knowledge-intensive industries (OECD, 2012b). To do this, the government has been investing in the stimulation of R&D. In addition, because the ESEE dataset covers all major manufacturing industries in Spain this will increase the
representativeness of this study.
4.2 Variables
4.2.1 Dependent variable
Internationalization: Firm internationalization levels indicate the importance of foreign sales in comparison to domestic sales. The majority of previous studies on
internationalization quantified internationalization as the ratio of foreign sales to total sales (Sullivan, 1994; Grant, 1987; Kafouros et al., 2008; Kotabe, Srinivasan & Aulakh, 2002). In line with this, this study operationalizes internationalization as the ratio of foreign sales to total sales with foreign sales including both sales generated via exporting and sales made by foreign affiliates. The resulting variable is this study’s dependent variable.
4.2.2 Independent variable
Public resources for R&D: A firm is supported by the government for performing R&D if it either receives public money from a public organization or when its financial obligations to public organizations are lowered. In both ways, public resources are used to stimulate R&D of private firms. Many studies have incorporated 3 types of funding into their variables, which are regional funding, state funding and funding from other levels of
data constraints, this study will consider only regional and state funding as sources of public funding. Other studies measuring the effect of public support have used dummies for public funding indicating whether a firm received funds or not (Acosta et al., 2015). This study aims to find the direct effect that receiving public resources has on internationalization of
supported firms in comparison to internationalization of firms that receive no public support. Therefore, in this study, public resources for R&D is also operationalized as a dummy variable indicating whether the firm received resources for R&D from public organizations.
4.2.3 Moderator variables
Collaboration with institutional partners: A firm collaborating with institutional partners is actively transferring resources to and from universities or other research institutes. Kafouros et al. (2015) incorporated a ratio of the expenditures on collaboration with
universities and institutes to total R&D expenditures in their study. This study focuses on the benefits of any collaboration between firms receiving support and universities and institutes. It is of the interest of this study only to determine if collaborating with institutional partners influences the effect of public support for R&D on R&D. This study does not focus on the extent of the collaboration. Therefore, collaboration with institutional partners is
operationalized as a dummy variable indicating whether the firm collaborated with universities or technological centers.
Innovation focus: A firm’s innovation focus is the ratio of its sales that it dedicates to innovation. Because R&D expenditures are the main fraction of firms’ innovation
engagement, Becker and Dietz (2004) call the share of sales dedicated to R&D the firm’s engagement in innovation. In line with this, this study operationalizes a firm’s innovation focus as total R&D expenses over total sales.
4.2.4 Control variables
Labor intensity: Human capital is an important determinant of firm-specific
advantages. In line with previous studies, labor intensity can be used as a proxy for the level of human capital inside the firm (Almodovar & Rugman, 2014). Labor intensity is
operationalized in this study as the firm’s labor expenses over total sales.
Age of company: The age of the firms influences its internationalization patterns. According to the Uppsala model, a firm’ internationalization is influenced by its experience in overcoming the liabilities of foreignness (Johanson & Vahlne, 1977). Older firms are argued to have gathered the necessary international experience over time leading to higher internationalization levels whereas the younger firms, with less experience establishing in international markets, are expected to have lower internationalization levels. Younger firms might however possess the learning advantages of newness (Fernández-Olmos, Gargallo-Castel & Giner-Bagüesa, 2015) Nonetheless, to correct for such effects, age is added as a control variable. This study operationalizes the age of the firm as the number of years
between the firm’s foundation and to when the company responded to the survey (Almodovar & Rugman, 2014).
Foreign ownership: The level of foreign ownership plays an important role in internationalization efforts and international performance of the firm. Fernández and Nieto (2006) demonstrate that foreign ownership affects internationalization patterns. Basile (2001) found that the level of foreign ownership influences international performance. In line with previous studies, this study operationalizes the variable foreign ownership as a percentage of foreign ownership in the company (Almodovar & Rugman, 2014; Fernández-Olmos et al., 2015).
Size: Managerial and financial resources are important determinants of firm performance. Firm size has often been used as a proxy of these resources (Almodovar & Rugman, 2014; Arregle, Naldi, Nordqvistt & Hitt, 2012). This study operationalizes size as the number of employees the firm holds.
Industry dummies: Studies from industrial economics have demonstrated that a firm’s performance can be influenced by the sector it is active in (Fernández-Olmos et al., 2015) In addition, internationalization patterns will differ between industries. To correct for industry effects, this study includes industry dummies corresponding to seven highly represented industries in the sample. Table 1 summarizes the variables used and their operationalization.
Table 1. Variables and operationalization
4.3 Statistical analysis and results
The descriptive statistics and correlations are presented in table 2. No correlation outcomes higher than 0,8 are found which indicates the absence of multicollinearity problems (Franke, 2010). I also test for multicollinearity by analyzing Variance Inflation Factors
However, problems are possible at lower values. These findings ensure the absence of multicollinearity issues.
The descriptive statistics show that the average age of the firm in the dataset is 29.92 years and has an average size of 195 employees. The mean of labor intensity indicates that the firms in the sample dedicated 30% of its sales to labor expenses. On average, firms exhibit 14% foreign ownership in the company. From the 1816 firms, 12.61% is active in the most highly represented industry. On average, 22% percent of firms collaborates with
institutional partners and 11% of firms receives public resources for R&D. The mean of firms’ innovation focuses is 1%. This means that, on average, firms spend 1% of their total sales on R&D. The lowest value for innovation focus is 0% which means these firms don’t spend on R&D, whereas the highest value is 97% which mean that 97% of sales is spent on R&D. The dependent variable internationalization has a mean of 23%. This means that 23% of sales is obtained internationally. The lowest value of internationalization is 0%, meaning no sales are generated internationally. The highest value found of internationalization is 100%, meaning that all sales are generated internationally.
All variables show a correlation with the dependent variable internationalization and independent variable public resources for R&D. The moderator variable innovation focus is correlated to the other variables but not to labor intensity, age of company and foreign ownership. Besides the lack of correlation between the moderator variable and control variables all variables are correlated with each other.
For the regression analyses I used the Ordinary Least Squares (OLS) method. The results of the regression analyses follow in Table 3. A total of 4 models are presented in this table. Model 1 considers the control variables only. Model 2 includes the independent variable public resources for R&D while still including the control variables. Model 3 adds into model 2 the moderating variable collaboration with institutional partners and the
interaction variable collaboration with institutional partners x public resources for R&D. The fourth model tests the hypothesis of a negative moderation of innovation focus, adding into model 2 the moderating variable innovation focus and the interaction variable innovation focus x public resources for R&D. In all the models, industry dummies are included as a mean of control.
The P-values of the 4 models included in the regression analyses suggests that the models are valid. The increasing R-squared suggests that model 2 with the independent variable included has a higher explanatory value than without the independent variable although these differences are small. This R-squared is not increased by adding innovation focus in model 4 but is slightly increased by adding collaboration with institutional partners and the interaction variable into model 3.
Analyzing Table 3 leads to the conclusion that innovation focus and the interaction variable of innovation focus with public resources for R&D are the strongest predictors of the level of internationalization.
Model 1 shows that all the control variables are significantly related to the scale of internationalization at a significance level of (p < 0.001). The significance of firm size
changes however in the different models. Firm size is insignificant in model 3 and significant at significance level of 0.05 and 0.10 in model 2 and 4 respectively. In addition, the
coefficient of firm size is extremely small at a level of 0.00. The age of company is
significant at a significance level of (p < 0.001) but also has an extremely low coefficient of 0.00. Labor intensity has a negative coefficient whereas all the other control variables have positive coefficients.
Table 3. Linear multiple regression models
Model 2 demonstrates that the independent variable public resources for R&D is significantly related (p < 0.001) to the degree of internationalization. The coefficient for this variable is positive (β = 0.13). These results support the positive direct relationship between receiving public support for R&D and the degree of internationalization, as proposed in hypothesis 1.
In model 3 the moderating variable collaboration with institutional partners was introduced, which is expected to positively moderate the relationship between receiving public support for R&D and the degree of internationalization. Model 3 shows that
collaboration with institutional partners, as an independent variable, significantly (p < 0.001). increases the level of firm internationalization. For the moderating role to be statistically supported, the interaction term needs to be positive and significant. The coefficient for the interaction term in Table 3 is negative (β = -0.02) and insignificant which forces me to reject hypothesis 2.
In model 4 the moderating variable innovation focus was introduced, which is expected to negatively moderate the role between receiving public support for R&D and the degree of internationalization. As an independent variable, Model 4 shows that innovation focus significantly increases the level of firm internationalization. For the moderating role to be statistically supported, the interaction term needs to be negative and significant. The coefficient for the interaction term in Table 3 is negative (β = -0.064) and significant, which provides support for hypothesis 3, although significance only appeared at the (p <0.10) level. Figure 2 illustrates the moderating effect of a firm’s innovation focus on the relationship between public resources for R&D and internationalization in Figure 2.
In addition to the previous analyses, I decided to put the supported firms into four different groups according to their innovation focus. Firms with no innovation focus (no expenditures on R&D) were put into group 1; firms with a low innovation focus (0 – 0,5 % of sales spent on R&D) into group 2; firms with a moderate innovation focus (0,5 – 2 % of sales spent on R&D) into group 3; and firms with a high innovation focus (2 – 100 % of sales spent on R&D) into group 4. I included the independent variable public resources for R&D and the
control variables in this model while adding the 4 groups as moderator variables and the interaction variables for these groups with respect to public resources for R&D.
The coefficients of the interaction terms were all found to be significant (p < 0.001), when using group 1 as the base. This does thus confirm a negative moderation of a firm’s innovation focus on the effect of public resources for R&D on internationalization. More importantly however, the results show that the negative moderation is the strongest for firms in group 2 with a low innovation focus and the weakest for firms in group 4 with a high innovation focus. The negative coefficient of group 3 lies in between the values of group 2 and 4. Thus, this corroborates with the notion that there is a negative moderation of a firm’s innovation focus on the effect of public resources for R&D on internationalization. However, this extra calculation adds to the previous findings that the negative moderation is the
strongest for firms in group 2 with a low innovation focus.
5. Discussion
I examined the direct relationship between public resources for R&D and firms’ degree of internationalization. In addition to this, I tested for a positive moderation of firms’ collaboration with institutional partners and a negative moderation of firms’ innovation focus on this direct relationship. Significant proof was found for a positive direct relationship between receiving public resources for R&D and the corresponding degree of
internationalization. This finding does thus corroborate with my first hypothesis. No proof was found for a positive moderation of collaboration with institutional partners on the effect of public support for R&D on the degree of firm internationalization. The positive direct relationship was however found to be negatively moderated by a firm’s innovation focus, corroborating my third hypothesis.
Besides providing support for the conceptual model hypothesized in this thesis, the empirical analysis shows that collaboration with institutional partners is an important predictor for the level of internationalization, even though there was found no positive moderation on the effect of public support for R&D on internationalization. In addition, it was found that the negative moderating effect is the strongest for firms with a low innovation focus. In the following sections the academic relevance, the managerial implications, public policy implications and the limitations of this study and suggestions for future research are discussed.
5.1 Academic relevance
Firstly, this thesis contributes to the existing literature on public support for R&D by shedding light on the direct relationship between public support for R&D and firm
has argued that public support for R&D can increase firm innovation (Antolín-López et al., 2015; Guo et al., 2016; Le & Jaffe, 2016; Un & Montoro-Sanchez, 2010). In addition, the literature has emphasized how innovation plays an important role in influencing international opportunities (Basile, 2001; Cassiman & Golovko, 2011; Filipescu et al., 2013; Girma et al., 2008; Guan & Ma, 2003; Kafouros et al., 2008; Korbin, 1991; Singh, 2009; Yi et al., 2013). However, this study adds to the literature on the effects of public support for R&D that this type of support will lead to higher internationalization levels. Although the public programs to support R&D are focused on increasing innovation, this thesis extends the literature on the effects of this type of support by addressing its effect on firms’ internationalization levels.
Secondly, this thesis contributes to the existing literature by shedding more light on the differential effects of public support for R&D on internationalization for different types of firms. Previous literature has addressed how public support for R&D will be used differently by different types of firms. Smaller firms use the funds for new projects whereas larger firms use it for projects it was already undertaking. (Gonzalez et al., 2005; Lach, 2002). The literature also found that funds were often assigned to more risky or profitable projects (Blanes & Busom, 2004; Busom et al., 2014; Giebe et al., 2006; Torres et al., 2016). This study extends the literature on the differential effects of public support for R&D by showing that the effect of public resources for R&D on internationalization is contingent on a firm’s innovation focus. In line with previous studies, this study demonstrates that outcomes of public support for R&D will be non-uniform.
In sum, although the literature has paid attention to the effectiveness of public support for R&D, the recent literature is still mainly focused on the effect of public support for R&D on the total R&D expenditures and innovation outcomes. This thesis therefore contributes to the extant literature on the total effects of public support for R&D by examining the direct
effect of public support for R&D on internationalization. Moreover, internationalization of firms is an important focus point both for firms and governments. Therefore, studying the direct effect of public support on internationalization directly, as well as the differences in the effects for firms with different characteristics is of academic relevance. This thesis has
extended the literature into the effects of public support for R&D on other factors than expenditures on R&D and innovation.
5.2 Managerial implications
This study also conveys some insightful managerial implications. Firstly, firms desiring to cross the national borders can gain insight from the analysis that applying for public support could increase their ability to internationalize. Torres et al. (2016) state that not all managers are aware of public support initiatives. In this case, firms should become aware and consider applying for public support for R&D. Especially, firms with no innovation focus have much to gain from applying.
Secondly, the study provides a better understanding of the factors explaining
differences in internationalization levels. Thus, knowing whether competitors receive public support might help firms assess the factors that determine the competitors’ international success or failure. Especially the firms with no innovation focus now gain a better
understanding of the factors leading to large differences in internationalization levels of that of competitors and the firm.
5.3 Public policy implications
This study also conveys some insightful implications for public policy. Firstly, this study provides new valuable insights into the effects of public support for R&D. The study shows that not only R&D or innovation, but also internationalization is affected by public funding for R&D. Therefore, for example, governments aiming to decrease
internationalization should not neglect to take into consideration that providing public support for R&D might counter any efforts to reduce internationalization of firms.
Secondly, governments could reconsider the guidance or incentives that are provided to firms receiving public support for R&D. This study has found no positive moderation of firms’ collaboration with public institutions such as universities and public research institutes. However, according to the innovation systems approach, the flows of technology and
information among people, firms and institutions are key to the innovative process (Fabrizio, 2006). Therefore, governments could either redesign the collaboration of public institutions with firms if it aims to increase the impact of public resources for R&D on
internationalization. The funds previously assigned to the stimulation of collaboration of public institutions with firms could also be used for providing more efficient stimulating mechanisms or guidance. Since it was found that the negative moderation of a firm’s
innovation focus was the highest for firms with a low innovation focus, especially this type of firm could be stimulated or guided differently to increase the positive effects of public
